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Binance lawsuit: Claimants mount up in arbitration for decentralization

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When does decentralization stop being an experiment in technological democracy and start being a way to avoid accountability?

That’s the question at the heart of a potential $100 million arbitration lawsuit against cryptocurrency exchange Binance, where close to 1,000 traders seek damages for losses suffered during the site’s outage on May 19. 

Binance experienced technical issues for several hours on May 19 amid one of the worst market crashes of the year as the global cryptocurrency market suffered a 33% drop. Traders were unable to execute trades for the duration of Binance’s outage, and many found their accounts depleted when the site came back online.

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Binance’s click-through terms of use absolve it of any responsibility for losses incurred by new users upon registering with the exchange. The company has no official headquarters and isn’t registered or regulated in any jurisdiction.

Hundreds of users have added their names to the case since it was announced on Aug. 19, said David Kay of Liti Capital, who leads the steering and advisory committee directing the arbitration on behalf of the claimants.

Of the 700+ original claimants, only six claim damages of more than $20 million. But Kay believes the total amount lost by traders during May 19’s blackout could be more than $100 million. 

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A cloak of decentralization?

Speaking to Cointelegraph, Kay said that Binance had self-applied the “decentralized” label to great effect during its time as the world’s largest cryptocurrency exchange, but only to further its aims. He said:

“Binance tries to cloak itself as a community asset, which it’s not. It’s a corporation utilizing community assets. […] It’s done a good job of blurring the lines, and wrapping itself in the idea of decentralization.”

Kay suggested that Binance used the notion of decentralization to carve dividing lines through the cryptocurrency community by fostering an “in-group/out-group” mentality, stating: “Binance will point to the fact it has no headquarters, the fact that it’s not regulated, and say: ‘If you’re against us, you’re against that [decentralization].’”

Binance founder and CEO Changpeng Zhao has eschewed the notion that the exchange requires an official headquarters, noting that Bitcoin (BTC) itself has no base of operations. Addressing an audience at Ethereal Summit 2020, Zhao said Binance’s office was wherever he and his team happened to operate from at the time:

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“Where’s the Bitcoin office? Bitcoin doesn’t have an office. […] Wherever I sit is going to be the Binance office. Wherever I need somebody is going to be the Binance office.”

Binance processes around $25 billion worth of cryptocurrency trades daily and has seen over $2 trillion move through its exchange to date. Its margin trading platform allows users to leverage trades to up to 125x their original holdings — a practice that has been banned by regulators in the United States and the United Kingdom.

In November 2020, Coinbase disabled margin trading on its professional trading platform following official guidance from the United States Commodity Futures Trading Commission. But Binance, along with numerous other unregulated cryptocurrency exchanges, continued to offer high-risk trading products.

The happy wanderer

Traders who suffered undue losses while using Binance’s systems have had few options to launch — let alone resolve — legal action against the company. As the exchange hopped from China, Japan and Malta over the past several years (settling nowhere), its customers had no recognized arena from which to base a legal case.

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Binance has since added a stipulation to its terms and conditions stating it would agree to hear claims made against it in the Hong Kong International Arbitration Centre. The HKIAC is very expensive for individuals to launch small claims in, with each case incurring a $65,000 fee simply to begin proceedings. What’s more, claims can only be made on an individual basis, precluding the possibility of class-action lawsuits.

The prohibitive cost of using the arbitration court effectively prices most users out of ever making a claim against the exchange. One claimant, who wishes to be known only as Jean-Jacques, lost over $10,000 the day Binance went down — an amount he’d be forced to pay many times over to use the Hong Kong court as an arbiter.

Other individuals lost funds ranging between $100 and $12 million on May 19, and on other dates before and since. Kate Marie, a healthcare consultant and author from Sydney, Australia, lost between $160,000 and $250,000 when she couldn’t access her futures trading account during the site outage. Marie said:

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“I couldn’t adequately manage my futures account and got liquidated rapidly, and without warning, my margin status had changed. Also happened again on the 23rd, even though I had safety measures in place. This was going to set me up for life.”

Retail trader Fawaz Ahmed of Toronto, Canada, lost out on 3,300 Ether (ETH) (worth around $6 million at the time) because the site’s user interface froze and stopped him from closing out his position. Ahmed described experiencing symptoms of serious depression following the crash.

No witch hunt

Kay stressed that the arbitration against Binance isn’t a witch hunt. He recognizes the utility that such a platform can bring to the cryptocurrency space but believes that a line has to be drawn in the sand.

“We are not anti-Binance. We are pro-Binance. Binance can still be good for the community. This is about the fact that we all make mistakes, but that ultimately, those mistakes have to be rectified. We don’t want to destroy Binance, but this needs to be cleaned up,” said Kay.

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Liti Capital, the group Kay heads up, is front-running the cost of the arbitration and will be compensated with a share of the damages awarded should the proceedings be judged in the claimants’ favor. 

The claimants aim to question the enforceability of Binance’s click-through terms of use, which Kay said doesn’t constitute a negotiated contract. The group will also look to challenge the idea that claims can only be made individually in the Hong Kong IAC, but Kay said they are also prepared to fight each claim one by one if they have to.

“We won’t stop if we have to bring lawsuits on them individually,” he said.

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User disagreement

Carol Goforth, a law professor at the University of Arkansas, said click-through terms of use are common in the world of e-commerce and could form part of a legally binding contract, assuming the terms are reasonable. Goforth told Cointelegraph:

“If the terms are reasonably conspicuous and you really do have to click through a link that warns you that you are agreeing to terms of the site, they can indeed become part of the contract.”

The user agreement could potentially be nullified, said Goforth, if the claimants show that the terms were unconscionable. This means they’d have to show the contract was unfair or abusive during its formation.

Binance had little to say about the prospect of the arbitration at the time of writing. A spokesperson told Cointelegraph, “We are committed to the legal process to resolve disputes and we do not comment on pending legal matters.” 

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The exchange was the target of heavy regulatory and legal scrutiny during summer 2021, as authorities in the United States, the United Kingdom, France, India, Japan, the Cayman Islands and more sought to either ban its trading products or pursue the exchange and its subsidiaries for violating national law. Binance has since shut down some of its leveraged trading products and has ceased offering its services to customers in certain jurisdictions.

The claimants lending their weight to the arbitration say they are doing so for a wide number of reasons. For some, including Kay, it’s about removing the false cloak of decentralization that Binance has used to disguise itself for so long. 

“Imagine if Amazon said, ‘Sorry, our workers and customers can never sue us, because we’re part of the internet — and the internet is to stay deregulated,’” stated Kay. “That doesn’t work.” 

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Binance

Hear From CZ – Binance’s Approach to User Protection and Proactive Compliance

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We’re always looking to build a better Binance. As part of our vision to increase the freedom of money around the world, we’re holding ourselves to the highest standards when it comes to protecting our users and staying atop the evolving regulatory landscape. Here’s what you need to know about our latest initiatives as we continue to implement global compliance programs to build a sustainable path forward for the crypto industry.

Four years ago, we launched Binance with a simple yet enduring vision – to increase the freedom of money for people around the world. Our approach was simple – to focus unwaveringly on our users and always act in their best interests.

This user-focused approach resonated with a diverse and global audience, giving us a chance to build one of the industry’s largest and most passionate crypto communities.

Much has changed since we first started our journey.

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Today’s crypto industry is no longer the nascent field that primarily attracted tech-savvy first adopters and speculative participants.

Traditional institutions and longtime holdouts are now exploring or offering crypto services of their own. Adoption is climbing all over the world, powered by a combination of bull markets and innovation.

Despite these developments, our goals at Binance remain the same – we want to help bring crypto to more people around the world.

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Today’s compliance and regulatory landscape marks a historic moment for the blockchain and crypto industry. Like all innovative industries that have come before it, from manufacturing and pharmaceuticals to Big Tech and ridesharing, the blockchain and crypto industry is now reaching a critical new stage of development.

We see the regulatory process as an amazing opportunity for proactive companies like Binance to pave the way forward for the industry.

We firmly believe that by working alongside regulators and policymakers to develop clear regulatory and legal frameworks, engaging in active self-regulation and putting our users first by protecting their interests, we can help welcome the next billion users to the world of crypto.

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I would like to take this opportunity to share some of the active steps we are taking to shape our robust compliance program and protect our users.

Mastering crypto compliance

Compliance and cooperation go hand-in-hand. In many ways, they resemble two sides of the same coin – you can’t have one without the other.

The process of compliance requires proactive players within the industry to come together with regulators and policymakers to build rules and operating frameworks, organize the industry’s values and create a foundation for sustainable growth.

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In this regard, we have committed to the following.

  • Growing our compliance team – To help maintain compliance in operating jurisdictions around the world, we grew our compliance team by 500% in 2021 so far and plan to double the team’s size by the end of the year.
  • Bringing on strategic advisors – We onboarded key compliance advisors, including appointing Rick McDonell and Josée Nadeau, former FATF executive secretary and head of the Canadian delegation respectively. In addition, we brought on Max Baucus, former United States senator and ambassador to China, to provide high-level regulatory guidance.
  • Practicing self-regulation – We hold ourselves to the highest standards in line with our commitment to compliance. This month, we proactively restricted derivatives product offerings to Hong Kong users in order to help create a more sustainable blockchain ecosystem.
  • Localizing operations and businesses – We aim to be regulated and apply for crypto exchange-related operating licenses in more local jurisdictions than any other blockchain ecosystem. From Binance.US to Binance Singapore, we work to maintain fully regulated entities using the Binance brand.
  • Deploying industry-leading RegTech tools – To ensure compliance with global ‘travel rule’ regulations, Binance was one of the first exchanges to deploy CipherTrace Traveler, a regulatory technology tool designed to “help Binance continue to meet the highest standards for global anti-money laundering compliance,” according to CiperTrace CEO Dave Jevans. CipherTrace Traveler joins several other KYC and RegTech solutions in our compliance arsenal.
  • Maintaining know-your-customer (KYC) compliance – We have proactively furthered our industry-leading KYC efforts by expanding global KYC requirements to further user protection and provide a safe crypto environment.
  • Launching a law enforcement request system – We launched a law enforcement request system (LERS) to help us better collaborate with government and law enforcement agencies to review each case and cooperate on a case-by-case basis to disclose information as legally required, in accordance with our terms of use and applicable laws.
Finding new ways to protect users

Alongside our strict compliance initiatives, we find additional ways to protect users to ensure they have the crypto experience they deserve. I’m proud to say that from the beginning we have always taken our responsibility as an ecosystem provider seriously when it comes to safeguarding the interests of our users.

  • Combating cybercrimes worldwide – Binance takes unilateral action to prevent bad actors from using our platform, including working with local law enforcement to take down cybercriminal groups. In addition, we work with private sector chain analytics companies to proactively identify and offboard suspicious accounts.
  • Investing in user education – We dedicate resources to create free educational content in order to increase crypto access and literacy for users on and off our ecosystem, from our comprehensive support center that contains hundreds of tutorials, to Binance Academy, our free education platform.
  • Launching an industry-first responsible trading program – Binance is the first and only exchange to implement technical and educational measures to encourage users to trade responsibly. From anti-addiction notices to ‘cooling-off’ suspension features, we actively remind users to exercise caution when trading.
  • Instituting a SAFU emergency insurance fund – We allocate 10% of all trading fees received into the ‘secure asset fund for users’ (SAFU) to protect users and their funds in emergency scenarios.
  • Providing user-first security tools – To create a safe and secure environment for users, we safeguard our platform with user-accessible security tools like hardware, app-based, SMS and email two-factor authentication methods, stringent password requirements, withdrawal address management tools, security alerts in the case of suspicious activity and more.

These are just a few of the ongoing initiatives we’re working on, as we uphold our commitment to regulatory compliance and user protection.

As I’ve said in my previous open letter, we at Binance are looking forward to helping generate sustainable growth for the industry. By continuing our work with regulators and policymakers, and making every effort to protect our users and put their interests first, I’m confident we will rise to the occasion and meet the moment, helping increase the freedom of money for more people around the world.

CZ, Binance CEO and founder

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Ripple

103.5 Million XRP Kicked to Binance by Anon Crypto Whales

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Over one hundred million XRP have been shifted to Binance by owners of anon XRP addresses

Whale Alert platform has spread the word that, in the past day, it noticed 103.5 million XRP coins shoveled to the Binance exchange from anonymous crypto addresses. Data provided by the Bithomp analytics platform shows that the transactions were made from other large trading venues.

Two transactions were detected, carrying 40 million XRP from Huobi to Binance and 63.2 million sent by Bybit exchange to Binance.

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The transaction fee for the first transfer was 0.05 XRP and 0.000012 XRP for the second one.

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Image via Whale Alert

On Sept. 22, Ripple was spotted moving 20 million coins to Bitso, the Mexico-based exchange and Ripple’s ODL partner in the Latin America region. The transfer was made from one of Ripple’s alternative wallets used for moving XRP beyond Ripple—to its customers and partners—RL18-VN.

Twelve million coins were sent from Bittrex exchange to Upbit.

Over the past few days, XRP has been trading in the $0.90 range. The token has managed to recover this area after falling to the $0.89 level three times after the drop from the $1.07 mark on Sept. 19, according to CoinMarketCap.

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Binance Coin price analysis: Can bulls breakthrough the $375 resistance level?

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  • Binance Coin price analysis suggests recovery to $400
  • The closest support level lies at $350
  • BNB faces resistance at the $375 mark

The Binance Coin price analysis shows that the bulls have struggled free from the bears and now dominate the short-term charts as BNB makes a return to the $375 mark. However, the selling pressure at the $375 mark remains high as the fear of another price drop causes a short-term sell-off. 

The broader cryptocurrency market observes a bullish market sentiment over the last 24-hours as most major cryptocurrencies record positive price movements. Major players include ATOM and SOL recording a 17.84 and a 14.12 percent incline respectively.

 

Binance Coin price analysis: Bears dominate the market

Binance Coin price analysis: Can bulls breakthrough the $375 resistance level? 1
Technical indicators for BNB/USDT by Tradingview

Across the technical indicators, the MACD is currently bullish as expressed by the green histogram. The indicators have just observed a bullish crossover in the last 12 hours and since then show a growing bullish momentum as the price action heads towards the $400 mark. However, the price action faces resistance at the $375 mark that prevents the momentum from growing further. 

The EMAs are currently moving upwards as the Binance Coin market recovers. The 12-EMA is trading with a steeper slope suggesting an increasing bullish momentum as the buying activity continues in the markets.  

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The RSI was down in the oversold region yesterday but now shows a strong retreat towards the 50.00 index level. The indicator was issuing a buy signal yesterday but now trades in the neutral region showing room for movement in either direction. While the indicator is trading with an upwards slope at press time, its neutral position leaves room for high volatility in the BNB markets. 

The Bollinger Bands are currently wide but show slight convergence as BNB returns to the indicator’s mean line. While the bulls tried to recover to the $400 mark, the indicator’s mean level presents a resistance that needs to be overcome before BNB can continue moving upwards. Overall, the indicators suggest that the BNB price volatility may be declining across the short-term charts. 

Technical analysis for BNB/USDT

Overall, the 4-hour Binance Coin price analysis currently shows a neutral market sentiment and does not support the bulls or the bears. The analysis shows eight of the 26 major technical indicators suggesting an upwards movement while the same number of indicators also suggest downwards movement. Meanwhile, the remaining ten indicators sit on the fence and do not issue any signals at press time. 

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The 24-hour Binance Coin price analysis issues a sell signal with 12 of the indicators suggesting a downwards price movement against only six indicators supporting the bulls across the timeframe. At the same time, eight indicators remain neutral and do not support either side of the market. 

What to expect from the Binance Coin price analysis?

Binance Coin price analysis: Can bulls breakthrough the $375 resistance level? 2
4-hour price chart by Tradingview

The Binance Coin price analysis shows that BNB has returned to a key level at the $375 mark as the market observes a momentum reversal. If BNB is able to break above the price can continue moving to the $400 mark with potential for further upwards movement. However, if the price action is rejected at the level it will fall back to the $350 mark with a potential drop to the $320 mark.

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