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Binance SAFU Fund Suspiciously Risky With 44% of Holdings in BNB

2 mins
Updated by Geraint Price
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In Brief

  • Binance’s SAFU insurance fund holds a disproportionately high amount of its own token (BNB), according to one analyst.
  • The analyst alluded to FTX using its own token (FTT) as collateral, which contributed to its downfall.
  • However, Binance CEO Changpeng Zhao explained that BNB’s price had risen more than Bitcoin’s since the fund was last rebalanced.
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The Binance insurance fund for users holds a suspiciously high amount of the exchange’s own token, Binance Coin, according to one analyst.

Binance established the Secure Asset Fund for Users (SAFU) in July 2018 as an insurance fund to protect users’ assets. The exchange said the fund would consist of an equal balance of Bitcoin, its own token BNB, and its stablecoin issued with Paxos, BUSD.

Yet, Bitcoin analyst Willy Woo expressed concern in a recent post about the current composition of Binance’s SAFU fund. According to on-chain metrics he cited, $367 million of the fund’s $937 million, roughly 44%, consisted of Binance’s BNB token. BUSD made up another 32% of the fund, $300 million, while Bitcoin rounded it out at $270 million, some 24%.

“While I commend Binance for having such a fund, there’s no sense putting incidence-correlated BNB in there,” Woo said. “How would we feel about FTX having an insurance fund filled with FTT?”

Woo also said that Binance created the nearly $1 billion SAFU fund to protect users’ interests on its platform. However, he implied that this would barely cover the $800 million held with Binance Custody, let alone on its exchange. Woo said that Binance’s most recent proof-of-reserves amounted to roughly $68 billion.

Binance on the Defense

Several commentators subsequently rushed to the defense of the fund, and the legitimacy of its composition. One pointed out a distinction between Binance tokens and those that had been issued by FTX. “Binance’s money is readily available, not leveraged and sits on the chain for everyone to review,” he said. “FTT is over leveraged with debts and fraud and there are no liquidity for its billions of fdv.”

Binance CEO Changpeng Zhao also came out to explain why the fund’s composition had become skewed. Although the $1 billion fund is “roughly split between BTC, BUSD, and BNB,” he said the price of BNB had risen faster than BTC’s since the fund had last been rebalanced. Zhao added that Binance had committed another $1 billion to its industry recovery fund in the past day.

Industry Recovery Initiative Goes Live

Yesterday, Binance officially launched its Industry Recovery Initiative (IRI), after earlier announcing its plan to help support ailing crypto firms. After committing an initial $1 billion to the fund, Zhao said above Binance would increase the amount by another $1 billion. 

The announcement detailed that several other partners had joined the initiative, collectively committing an additional $50 million to the fund. These partners are entitled to review each applicant to the fund, of which there are already 150.

The announcement specified certain criteria for the fund’s applicants, namely, “1) innovation and long-term value creation, 2) a clearly delineated and viable business model, and 3) a laser focus on risk management.”

In addition to the Binance IRI, rival crypto exchange Bybit also recently announced its own recovery initiative. Despite lacking its rival’s vast financial resources, Bybit said it hopes “to be the Crypto Ark of the world” through its $100 million support fund.

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Nicholas Pongratz
Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage.
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