This article takes you to understand the biggest threat to Binance: the US CFTC and the US SEC
Author of Wu Shuo | Uncle Tan
Editor of this issue | Colin Wu
Author of Wu Shuo | Uncle Tan
Editor of this issue | Colin Wu
When Binance was founded, some of its services could be used without KYC. Binance’s derivatives and listings are also the most aggressive. At the same time, the attitude of Binance to communicate with the government is also very positive. But in the foreseeable future, the contradiction between non-compliant business and supervision will become more intense.
With an annual profit of US$1 billion and a valuation of hundreds of billions of US dollars, BNB has become the third largest cryptocurrency. If anyone can threaten Binance, the "largest firm in the universe", it may only be the two US government departments in the title.
On the evening of March 12, according to a Bloomberg report, the US Commodity Futures Trading Commission (CFTC) is investigating Binance. Trade commodity futures. The report also pointed out that the CFTC is only investigating Binance and has not accused Binance of wrongdoing. As soon as the news was released, Binance’s platform currency BNB immediately fell by 6%, and since then it has fallen by as much as nearly 20%.
There are many regulatory agencies in the United States. For example, the SEC is responsible for the supervision of the securities field, and the CFTC is responsible for the supervision of commodity futures. As a commodity, Bitcoin’s futures naturally fall within the scope of CFTC’s supervision, and CFTC’s supervision of Bitcoin futures is not without precedent. ——In October last year, the CFTC filed criminal charges against four executives of Bitmex, including founder Arthur Hayes, accusing their Bitmex platform of providing services for trading bitcoin futures for users in the United States.
Why is the CFTC investigating Binance? Obviously, there are bitcoin futures contracts similar to those on Bitmex on the Binance platform. If any American user has used this service, it will naturally fall under the supervision of the CFTC.
Although both Bitmex and Binance later strengthened KYC/AML-related audits and blocked American users from accessing their websites, and Binance also created a compliant Binance.us specifically for American users, neither Bitmex nor Binance On the main site, since its inception, it has been able to use their services without KYC for a long time (for Binance, the daily withdrawal limit for users without KYC is 2BTC, see [Binance official website](1) for details). It can be seen that both Binance and Bitmex have inevitably provided services to American users, so the CFTC investigation is reasonable.
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Being investigated by the CFTC isn’t Binance’s only trouble
As a non-compliant exchange, Binance is not unaware of regulatory issues from the United States. In October last year, [Forbes](2) magazine obtained an internal report from Binance. The report was drafted in 2018, and its main purpose was to make Binance avoid US supervision as much as possible. The name "Tai Chi" can also be seen from the meaning of the name to see what it wants to achieve.
The establishment of Binance.us comes from this report, and the purpose of establishing Binance.us is to divert the attention of the US regulators. Binance.us has been a fully compliant exchange from head to toe since its inception. However, the report also mentioned that Binance.us can be used as "bait" to attract US users to use VPN to use Binance International Station.
The "Tai Chi" plan also developed a plan to avoid SEC supervision. As we all know, Binance will spend 20% of its profits every quarter to repurchase its own platform tokens and burn them until only 50% of the initial supply of BNB remains. In April 2019, Binance quietly revised the white paper of BNB, changing the part of the white paper "Take out 20% of the quarterly profit to repurchase its own platform currency and destroy it" to "Destroy is equivalent to 20% of the quarterly profit BNB".
The difference is that the original expression is to repurchase BNB from the market, while the latter expression means that Binance can not repurchase, but destroy the corresponding amount from the BNB retained by the destruction company. The reason for this change is because "repurchase" is a concept in the stock market. Such a statement obviously falls within the scope of the SEC's supervision.
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What impact will SEC regulation have on Binance and BNB
Binance’s precautions are not unreasonable. In the latest listing application submitted by Coinbase, it is specifically mentioned that Coinbase is also competing with some “not very regulated exchanges” on the market, and it also specifically named Binance. Once again attracted the attention of the SEC.
As for Binance, the SEC has already taken corresponding actions. In July last year, the SEC hired blockchain analysis company CipherTrace to conduct research and analysis on Binance. It is said that CipherTrace is the only company that can analyze all assets on Binance (including BNB) and all other tokens) for analysis and research. According to Forbes' speculation, the SEC's move is for a more important investigation, that is, to study whether BNB is a real security.
If the SEC decides that BNB is a security, it may initiate a lawsuit against Binance. For the SEC, this is obviously not the first time. There have been many cases before, and the most famous one is Block One, which issued EOS. and the lawsuit against Ripple.
In the end, Block One, the issuing company of EOS, settled with the SEC and paid a fine of $24 million. The SEC demanded that Ripple's two executives pay a fine of US$1.3 billion for its allegations of issuing unregistered securities. In the absence of a settlement, Ripple has chosen to defend against the SEC.
If the SEC identifies BNB as an unregistered security and files a lawsuit against Binance, what impact will it have on Binance and even BNB?
One situation is reconciliation. If you can reconcile with the SEC, you can still operate normally after paying a fine. Referring to EOS, the reconciliation is equivalent to lifting the regulatory risk at the SEC level.
In another case, you need to refer to Ripple. In December last year, as soon as the SEC sued Ripple, the price of XRP fell by 25% that day. Some compliant exchanges, including binance.us, also delisted xrp immediately for safety reasons.
[1]:https://www.binance.com/en/support/articles/115000864371-Verification-on-Binance
