Binance CEO Changpeng CZ Zhao addresses concerns over exaggerated statistics by providing crucial clarifications, highlighting significant withdrawal volumes to ensure accurate information and prevent misunderstandings.
Because some of the statistics was exaggerated, Changpeng CZ Zhao, CEO of the Binance exchange, wanted to be clear. In reality, he provided two crucial comments on the subject while confirming large withdrawal volumes, as without them, one might receive the erroneous impression.
Binance: CZ details the value decline
News about the number of withdrawals from Binance since the SEC complaint has been widely reported in recent days.
CZ first drew attention to the fact that, in contrast to the figure that many publications have reported, net withdrawals between Friday, June 9, and Saturday, June 10, were less than $400 million.
Both figures are accurate in fact, but they refer to distinct things. CZ clarified that a lot of these calculations use Binance’s AUM as a benchmark.
The dollar amount of all monies handled by Binance on behalf of its customers is known as the exchange’s AUM (Asset Under Management).
As a result, it is easy to compute the daily decrease in assets under management properly by deducting the AUM figure from the previous day from the AUM value for the current day.
However, as CZ notes, AUM is determined every day from the market values of all the different assets at a specific time, and these values might potentially decrease due to a simple decrease in their prices.
Therefore, the calculation based on the change in AUM does not distinguish between how much of this decline is attributable to withdrawals and how much is attributable to declines in the prices of assets still under management; it only shows how much the total value of the assets the exchange holds on behalf of its clients has decreased.
Given that we are talking about hundreds of millions of dollars, the difference seems enormous.
November’s high point
The contrast with November 2022, though, is an even more intriguing aspect that CZ brought up.
In fact, many people hurried to withdraw their money from several exchanges, including Binance, as soon as FTX failed.
CZ recounts that at that time, they had to manage withdrawals of $7 billion in just one day.
That was a pivotal time for Binance as well as other cryptocurrency exchanges that were worried about suffering the same fate as FTX.
A sharp increase in withdrawal requests was exactly what led to FTX’s bankruptcy; the company did not have enough cash on hand to accommodate all of the withdrawal demands.
Additionally, exchange proof-of-reserves were not yet made public at the time, so nobody knew how much money Binance had on hand.
What concerns most for now, though, is that there is a gap between the $7 billion withdrawn in a single day in November 2022 and the $392 million in funds withdrawn between June 9 and 10, 2023. In light of the history, what occurred last week seems to be extremely insignificant.
The numbers that CZ cites are daily data, not weekly data. It is important to note that $2.36 billion in total, plus $124 million from Binance, would have been removed from the exchange in one week, according to Nansen.US, which is yet less than the daily outflow record set in November.
The outflow would have been 3.35 billion according to DefiLlama, and 1 billion in Bitcoin alone according to Glassnode.
No matter how you look at it, even if the outflows last week were quite large, they were not records.
Furthermore, CZ emphasized that substantial outflows are perfectly typical during times of volatility and that they are frequently followed by substantial inflows, which are typically brought on by traders who wish to arbitrage and are consequently compelled to transfer a significant amount of money from one exchange to another.
In this context, it is important to note that there have recently been substantial sell-offs on Binance, but particularly on Binance.US, where customers have agreed to sell their cryptocurrency holdings for a significant discount to market value.
As a result, it is highly conceivable that arbitrageurs attempted to profit from this in a large-scale manner, even depositing considerable quantities of money in order to be able to purchase at a discount.
Therefore, while the situation was undoubtedly challenging, it wasn’t as challenging as one might have assumed in the absence of these crucial disclosures.