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Binance Proposes A Recovery Fund as Exchanges Face Liquidity Crisis

CZ says that Binance is setting up a recovery fund to help rebuild the industry as it faces a liquidity crisis - mistakes appear one by one.

FTX and Binance logos. Source: Reuters

At first glance Binance is a good guy here - it all seems to be very generous and nice. But let’s not forget how it was “helping” FTX just a week ago. First of all Binance is partially to blame for the FTX crisis: the CZ announcement made FTT fall rapidly and we do not believe that it happened by accident. And just a few days later Binance backed out of a deal to rescue FTX. Also here comes another good guy who “helped” FTX users recover funds - Justin Sun said that Tron, Huobi Global and Poloniex will support Binance in its initiative.

Besides, it is all about business. We can barely imagine CZ just giving money to its rivals and getting nothing in return. Its highly likely this is a way to acquire other players in the crypto industry and strengthen Binance’s position. Or, maybe CZ knows something that we don’t? If he expects that Binance might face a liquidity crisis too, it’s a wise idea to offer “other industry players” cash to co-invest in a common liquidity fund and then just use it.

CZ said that more details will be announced in the coming days, so let’s wait and see. But we expect that he will suggest other companies to co-invest in Binance SAFU (Secure Asset Fund for Users) and will reserve the right to manage the fund.

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The fall of FTX again highlighted the importance of proof of liquidity and reserves. It has made leading crypto exchanges share their wallets to try and prove that they are not following the same path. There have been other surprises.

For example, it was revealed that transferred 320,000 ETH (82% of its holdings in cold storage) to Later Crypto com CEO said that “It was supposed to be a move to a new cold storage address, but the amount was sent to a whitelisted external exchange address,” subsequently the assets were completely refunded. Was it an accident or did the exchange move funds for some other reasons? Well, we are quite alarmed that it is possible to confuse addresses when you transfer that kind of sum… but it’s not the first time for

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CZ also pledged to start a Proof of Reserves audit system. Let’s hope that there won’t be any further surprises. For now, CZ seems to be completely relaxed and even finds time to make fun of the competitors. Hope it is a good sign.

Right now we all are in the thick of things. As observers, we are happy to find so many things to comment on. As customers of exchanges, we are more than worried. In our opinion, FTX knew about its problems and most likely, didn’t transfer the sum accidentally… Lack of regulation lets exchanges play on the verge of failure - and sometimes they fail. Do you think the Binance fund will help the failing ones?