In the wake of FTXs collapse in November, the newly crowned kingpin of crypto, Binance CEO and cofounder Changpeng CZ Zhao, announced that his exchange would create an industry recovery fund to help projects who are otherwise strong, but in a liquidity crisis.
Binance committed $1 billion of its own capital, seeded into a public address with its self-branded stablecoin, BUSD, and invited other companies to participate. Binance also boasted that it intended to ramp up its own contribution to $2 billion.
After BUSD came under fire from U.S. regulators and Binance partner Paxos stopped issuing the token, Zhao tweeted on March 13 that Binance would convert the $1 billion left in the Industry Recovery Initiative to native crypto, including Bitcoin, Ether, and Binances own cryptocurrency, BNB.
Some fund movements will occur on-chain, he wrote. Transparency.
In a single transaction on March 13, Binance moved just over $985 million BUSD to one of its corporate exchange wallets, called Binance 14. Despite Zhaos promise of transparency, there have been no subsequent movement of the funds, and a Binance spokesperson told Fortune that the company intends to keep the capital in its corporate wallets, rather than a public address, without specifying how the BUSD will be converted.
We remain committed to supporting the industryalthough given the fact that crypto prices have recovered well above post-FTX levels, there are not as many companies in need of help, the spokesperson said. We will keep funds available, as needed, but they will sit in our corporate wallets rather than in the IRI wallet.
As Binance faces increasing pressure from regulators amid allegations of misappropriated funds, the mismatch between public rhetoric and private behavior regarding the recovery initiative doesnt help the companys optics.
Given the changes in stable coins and banks, #Binance will convert the remaining of the $1 billion Industry Recovery Initiative funds from BUSD to native crypto, including #BTC, #BNB and ETH. Some fund movements will occur on-chain. Transparency.
CZ Binance (@cz_binance) March 13, 2023
After Zhao announced the crypto recovery fund on Nov. 14, the initiative quickly drew praiseand participationthroughout the industry. It also attracted top partners, with leading companies such as Jump Crypto, Polygon Ventures, Aptos Labs, and Animoca Brands agreeing to contribute around $50 million in aggregate.
Ten days after announcing the fund, Binance said it had received over 150 applications from companies seeking support. By February, the exchange announced that the fund had grown to $1.1 billionmeaning the commitment from other firms had grown by just $50 millionand that it had supported 14 projects, including the South Korean exchange GOPAX.
Because Binance listed a public address for its portion of the recovery initiative, its possible to see transactions into and out of the fund. Until Binance moved out its BUSD in March, the address only registered two outgoing transactionsone on Nov. 24, for just over $50 in BUSD, and the other on Feb. 3 for just under $15 million in BUSD. The Binance spokesperson confirmed the latter transaction was for GOPAX.
To reduce further cascading negative effects of FTX, Binance is forming an industry recovery fund, to help projects who are otherwise strong, but in a liquidity crisis. More details to come soon. In the meantime, please contact Binance Labs if you think you qualify. 1/2
CZ Binance (@cz_binance) November 14, 2022
BUSD has been a target of criticism. Even though the New York-based Paxos issued the stablecoin, which is backed 1-to-1 with the dollar, Binance issued its own wrapped version of the token that would function on its proprietary blockchain, Binance Smart Chain. BUSD is only operable on Ethereum.
In early January, the blockchain analytics firm ChainArgos revealed that the wrapped version of BUSDcalled Binance-peg BUSDwas often undercollateralized, or not backed 1-to-1and Bloomberg later reported that Binance was commingling collateral for the Binance-peg BUSD token with customer exchange funds in a corporate wallet called Binance 8. A spokesperson said that the collateral assets had been moved into the wallet in error. Fortune reported that a similar dynamic occurred with a different wrapped token, Binance-peg USDC, in a corporate wallet named Binance 14.
Commingling different types of assets in the same corporate wallets has been a persistent management issue for Binance, including with the recovery fund. The $1 billion in BUSD initially came from the corporate wallet Binance 14, which also stores customer funds, raising the eyebrows of onlookers on Crypto Twitter.
So much transparency that CZ just pulls out a casual 1B from one of the proof of reserves wallets labelled Binance 14 to be the saviour of the crypto industry. pic.twitter.com/3bDMDtQijJ
FrancisKim.eth (@FrancisKimETH) November 25, 2022
With its recent decision to move the recovery initiative fund back to a corporate wallet, Binance is repeating the same dynamic. After the New York Department of Financial Services ordered Paxos to stop issuing BUSD amid allegations of Binances improper management of wrapped tokens, BUSDs market cap fell sharply, spurring Binance to declare it would convert its $1 billion of BUSD in the recovery initiative to Bitcoin, Ether, and BNB.
Even though Zhao publicly said this process would be happening with transparency, the company spokesperson confirmed that the fund instead would be stored in Binance 14where the capital initially came fromrather than in a publicly viewable and separate address. The spokesperson did not clarify the discrepancy between Zhaos public statement and the private management decision.
With crypto markets rebounding, applications to the initiative have dropped significantly, the spokesperson added. The funds remain available, but with them back in a corporate wallet its impossible to track whether Binance indeed converted the BUSD into native crypto or whether it will continue to disseminate the funds.
