It seems like months ago now but prior to the bank run, Binance was in the news for all of the wrong reasons. Making the matters worse was that Binance was self-inflicting these wounds and honestly seemed to be going out of its way to do something that was just plain stupid. Let's be honest one of if not the biggest pros of blockchain technology is that the typical blockchain we talk and read about are visible for all to see. So when you commit a stupid error it is visible for all to see.
The first of the series of gafs on Binance's part dealt with its proof of reserves that they issued after the fall of FTX. When this was done the initial release was okay but then because this was done on a public blockchain people began to see Binance move around some of the funds. This goes against the idea that these are reserves as reserves are meant to be idle and not something that is shuffled around. Moving the assets thus caused some concern but Binance assured everyone that it was fine and the fear died down.
Not too long after this though the accounting/auditing firm, Mazars Group, that was handling Binances accounts and their proof of reserves quit. Not only did they quit but they ended up closing all accounts that they had with crypto and Web3 companies. Even with the fall of FTX and the uncertainty facing the industry that was a pretty wild thing to see and again, there was a big cause for concern. CZ was able to once more get ahead of it and really tamp down the fear. Of course, then CZ went on CNBC and did not do a good job when being asked basic questions about the health of Binance which resulted in another self-inflicted wound to Binance.
At the beginning of this month though everything really seemed to be coming together against Binance and CZ. Instead of having crypto-centered news sources like Coin Desk and Decrypt writing articles about the oddities surrounding Binance bigger names like Forbes, Bloomberg, and CNBC started to report on them regularly. These major news outlets started to rehash things that the crypto community had known about like the $1.8 billion USDC debacle that Binance had in August, the shutdown of Paxos issuing BUSD, and CZ combating these issues by using Twitter calling the issues raised FUD instead of taking at least a few of these examples and deconstructing them proving that Binance was okay.
Along with this new mainstream attention and floundering response by Binance and CZ, it came out that $400 million in Binance.US funds, funds that were supposed to be separate from Binance and out of CZ's control, were moved from Binance.US to a hedge fund controlled by CZ. Immediately alarm bells were set off since we had just seen FTX do a very similar thing before that company collapsed. Other issues soon gained renewed exposure like Binance paying fines to the US for allowing its services to be used in sanctioned countries and the various warnings that US regulators had sent Binance about their business practices.
What I find pretty remarkable about this whole thing is that this has all come out in roughly the last 6 months. That is an extremely short time window for a company as large as Binance to run into all of these issues. Taking all of this into consideration I have to ask but is anyone really surprised with Binance and CZ getting sued by US regulators? Once the Paxos/Binance partnership was taken out by regulators the writing really seemed to be on the wall.
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