The Binance crypto exchange recently had an enormous increase in USDC withdrawal accompanied by a pause in the stablecoin withdrawal. The pause left users with a FUD impression on Binance, but the firm said it was conducting a token swap involving USDC and would reopen withdrawal once completed. In an interview with CNBC, CZ mentioned that the traditional banks are responsible for the withdrawal issue. “It wasn’t a liquidity issue; it was a conversion issue,” he said.
The Binance CEO explained to CNBC that the firm does a conversion to BUSD and is not issued by Binance but by a New York KYC-licensed entity, Paxos. Then, the conversion channels involve going through a bank because to convert USDC into USD, Binance has to convert in a bank to cash with a different bank account and buy from a different institution.
Responding to the development on Twitter, he said, “the channel to swap from PAX/BUSD to USDC requires going through a bank in NY in USD. The banks are not open for another few hours. We expect the situation will be restored when the banks open.”
These are 1:1 conversions with no margin or leverage involved. We will also try to establish more fluid swap channels in the future, he continued.
Every well governed (crypto) exchange should hold users’ assets in a 1:1 manner. — CZ
He further said in the interview with CNBC, “that day we had more users trying to deposit BUSD and withdraw USDC, we ran out of that. The bank that does the conversion was not open until 6 hours later and that’s a bank in New York.”
The conversion channel doesn’t apply to other crypto assets on the exchange, CZ mentioned, and stablecoins are the only assets Binance converts. “People deposit Bitcoin, we hold Bitcoin; people deposit Ethereum, we hold Ethereum.”
CZ stated that withdrawal wouldn’t destabilize Binance, and people can withdraw 100% of their assets on Binance; the firm will not have an issue on any given day. “So, if 100% of users withdraw 100% of assets, we’ll be fine.” CZ is that addressed that Binance wouldn’t prevent people from taking their money away from the exchange.
Centralized exchanges hold users’ assets deposited in their platform and according to CZ, every well governed exchange should hold users’ assets in a 1:1 manner. Crypto exchanges do not run fractional reserves like traditional banks and in crypto, there is no central bank printing money to bail out banks when there is a liquidity crunch, CZ said. So, “crypto exchanges have to hold user assets 1:1.”
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