Black box accounting is a method used to obscure financial reporting and confuse a financial statement reader without doing anything that violates the law. In essence, it muddies the waters and covers up how a business is really doing, and promotes a view that might not exactly be the whole truth. The key thing about it is that it is not illegal so while those in accounting will call it out and look down upon it there is not anything "wrong" that someone could end up in jail for. Regulations make it nearly impossible for publically traded companies to participate in this type of accounting but when it comes to being a private company and thus you do not have to open up your books to regulators as much this type of accounting can run rampant. That is not to say that Binance is doing this or trying to appear shady in any way but it is the sort of view people have of them now.
An example of these practices that have become publically known includes when Binance published their reserves only for billions to be moved shortly thereafter. They also had their auditing firm not only quit on them but then pull out of the crypto industry overall and that is just not a good look to have whatsoever. A couple of weeks ago when CZ was on CNBC to talk about Binance and FTX it was brought up that the bankruptcy people for FTX could claw back the $2 billion paid to Binance from FTX. What occurred was a classic case of someone not expecting the question nor being able to pivot on their feet to handle this line of questioning as he poorly tried to avoid this question. Again while not illegal it does not cast a healthy light on the business.
After watching FTX go on its buying spree before it fell it is concerning that Binance has more or less followed the same path. They or their subsidiaries have announced the creation of a fund to bail out affected projects and businesses and they are working to close the Voyager acquisition that FTX had to abandon. Not only that they are expanding their staff headcount during a time when even businesses with cash reserves Bianace could only dream of are laying people off due to the economic uncertainty. There is also the issue of BUSD demand falling which if it continues will drag down Binance and its finances overall.
Binance is suffering from the classic issue that modern private companies face and that is the lack of transparency. I find it pretty funny since Binance is operating in a space that is supposed to be all about transparency but that is not the case with Binance. This lack of transparency is resulting in issues with regulators and investigations into the company. Binance then has to spend considerable resources on having to handle these investigations and already we are seeing these weigh on Binance with the SEC filing an objection to the Voyager acquisition. Even with the judge allowing the process to continue as we have seen with FTX the lack of transparency could result in massive massive issues in the end.
I would not be surprised to see widespread changes at Binance in the coming months. While they have operated in a work-from-home style for a long time I would expect to see them launch something like small branches/headquarters in major countries of operations and really highlight these. Having forward-facing physical locations with workers in the US and European countries will provide some level of comfort to regulators and could give Binance more breathing room. Do these places need to be extravagant like we have seen with FTX or Silicon Valley tech companies? No not at all and honestly if they were I think that opens up a whole new set of questions.
Binance needs to change from the way that it is currently operating though because of the damage FTX has caused. While Coinbase is not perfect its books are much much more open and publically available for people to see so following in their footsteps would not be the craziest idea. That's not to say that Binance needs to go public and I would argue that it would be worse if they did but the public nature of Coinbases books would be a huge benefit to the industry and Binance itself.
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