FT Cryptofinance: Binance flexes its muscles

Hello and welcome to the FT’s Cryptofinance newsletter. This week we’re talking Binance acting like your standard Silicon Valley tech giant.

Crypto is rife with promises about a future financial system that protects an individual’s freedom to choose where to park their money, and liberation from being tied to an all-powerful third party.

For some, Binance, the biggest crypto exchange around, this week deeply challenged this narrative. On Monday, Binance said it would automatically convert customers’ deposits of the USDC stablecoin, run by Circle, into Binance’s own native stablecoin, BUSD.

Binance said it would do the same for deposits of smaller stablecoins USDP and TUSD. For good measure, it will also remove specific spot trading pairs from rival stablecoin providers Tether and Paxos from its platform.

Binance said users would continue to be able to withdraw funds in USDC, USDP and TUSD. Even so, customers won’t be able to trade quite as freely as they used to. The switch takes place at the end of the month.

Stablecoins are the fuel of the crypto market. They are normally pegged to the world’s biggest and most stable currencies and act as a bridge between the crypto and traditional markets. Keeping assets as stablecoins makes it faster and easier for traders to buy and sell digital tokens.

Binance explained its decision was to “enhance liquidity” for users. The move is intended to make the market deeper and more liquid by consolidating trading around one stablecoin — its own.

Paxos said Binance had made a positive step for the safety of its customers. Circle felt it was a more straightforward commercial decision because its stablecoin, USDC, was being increasingly actively traded on Binance, alongside Binance’s own stablecoin. Jeremy Allaire, chief executive of Circle, said Binance’s move “probably wouldn’t fly for a regulated market in the US, and certainly not how I would have handled [it]”, but added that it might make USDC on Binance “more attractive”. Binance said the move had been discussed and agreed with Circle/USDC and other third parties before taking the decision.

Beyond the entertaining corporate spat, Binance’s decision goes to the heart of an awkward issue for crypto. The vision of a decentralised marketplace, where customers can freely and seamlessly trade or move their funds from one place to another, becomes irrelevant when large sums of money and rival marketplaces are involved.

“It’s more of a competition story, Binance is feeling a bit of heat from other players and wants to carve out space for itself and ringfence its system,” Ilan Solot, partner at venture capital firm Tagus Capital, told me.

“There is such a tendency towards centralisation for anybody who is actually trying to do anything,” said angel investor and crypto sceptic Liron Shapira, adding that decentralisation was a “purely idealistic goal that sounds good, that doesn’t actually matter”.

Some still see abandoning decentralisation as akin to a cardinal sin.

“This move from Binance is shameful and totally against the ethos of what crypto stands for,” Charles Storry, head of growth at decentralised crypto index platform Phuture, told me this week.

But where once upon a time Binance’s move may have inflamed the industry, it is increasingly reacting with a shrug. “I think that by now most players in the industry accept that decentralisation is a spectrum,” Solot said.

Binance has been using this quiet time after the tumultuous spring and early summer to bolster its already dominant grip on the digital assets market.

Last month it beefed up its existing free spot trading initiative to include the cryptocurrency ethereum, which Binance said would give users the chance to trade around the historic Merge on the ethereum blockchain.

Market onlookers weren’t convinced at the time, telling me the move was tantamount to a market leader trying to entrench its dominant position.

This, of course, is a tactic the traditional world of finance and technology knows all too well.

“[It] seems to me to raise some antitrust issues similar to the ones folks are talking about in connection with Google and Amazon — namely, an at least somewhat open tech platform’s favouritism for its own products and services over competing ones,” Peter Fox, partner at Scoolidge Peters Russotti & Fox LLP told me.

What’s your take on Binance’s recent stablecoin decision? Email me your thoughts at scott.chipolina@ft.com.

Weekly highlights

• A court document filed this week shows Voyager Digital, crypto platform and high-profile casualty of the crash of ’22, will be holding an auction for its assets on September 13. The auction will take place in the New York offices of Moelis & Co, the beleaguered company’s investment bank.

• US* regulators slammed Celsius, the Alex Mashinsky-led lending platform that is now largely synonymous with the largest crypto market collapse in history. In a court filing dated September 7, the Vermont Department of Financial Regulation said, excluding the company’s net position in CEL, the platform’s native crypto token, Celsius was insolvent since at least February 2019.

• From El Salvador to . . . *checks notes* . . . Woolpit, a village in Suffolk, north-east of London. Bitcoin’s quest to become the world’s currency of choice has now reached Yum Yum Tree Fudge, a small fudge maker. Employee Adrian Turner said the company started accepting bitcoin as payment for a year to be “ahead of the curve”.

• Unless you’ve been living under a rock and can’t receive this newsletter, you’ll know the Ethereum Merge is fast approaching. Once it happens, Ethereum’s energy consumption should all but vanish. Ethereum’s developers have signed off on one last major upgrade and the blockchain’s co-founder Vitalik Buterin also said this week the Merge could now happen as early as next Tuesday.

• Popular South American crypto exchange Mercado Bitcoin slashed more than 10 per cent of its workforce earlier this year. This week, the exchange’s parent company, 2TM Group, has announced a move to lay off 15 per cent of its staff, citing “challenges imposed by the global economy”. If you’ve followed the great crypto lay-off of 2022, that will sound very familiar to you.

• Don’t forget to check out the FT’s latest episode of our podcast series “A Sceptic’s Guide to Crypto”. This week: The church of bitcoin: is crypto a cult?

Soundbite of the week: Gary Gensler takes aim at crypto once again

Gary Gensler, chair of the US Securities and Exchange Commission, offered his most unambiguous statement yet on the legal status of crypto assets in the US, saying that the vast majority of the 10,000 tokens on the market were securities.

“Nothing about the crypto markets is incompatible with the securities laws. Investor protection is just as relevant, regardless of underlying technologies.”

Data mining

Binance’s decision to automatically convert users’ USDC holdings to the company’s native stablecoin BUSD comes at an auspicious time.

Data compiled by CryptoCompare shows USDC’s bitcoin and ether trading volume on Binance has been growing steadily during the second half of this year, following a quiet start to the year.

That’s all for this week folks. I’ll be away next week, but I’ll be leaving you in the very capable hands of my colleague, Philip Stafford, and I’ll be back in your inbox on Friday September 23. Have a great weekend!

*This article has been amended to show that the court filing was made by a US regulator