Binance, the world’s largest cryptocurrency exchange, announced on Tuesday that it was suspending withdrawals from the stablecoin USDC while it performs a “token swap”.
The move comes amid growing investor concerns about Binance’s stability following the collapse of rival exchange FTX as well as a report of a possible criminal investigation by the US government.
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Binance said it had “temporarily paused” USDC withdrawals while it conducted a “token swap.” It involves exchanging one cryptocurrency for another without the need for fiat currency.
Changpeng Zhao, CEO of Binance, tweeted on Tuesday that the exchange was seeing an increase in withdrawals of USDC, a cryptocurrency known as a stablecoin because it is pegged individually with the American dollars.
USDC is used by investors to trade in and out of different cryptocurrencies without the need to transfer money in US dollars. If traders are removing USDC from Binance, it could be to move it to another platform.
Zhao said any transfer to USDC from the stablecoin known as PAX, as well as Binance’s own BUSD token, requires routing through a New York-based bank that is not yet open. Zhao’s suggestion is that users seek to convert their PAX and BUSD to USDC in order to withdraw their funds from Binance.
A token swap could be a way for Binance to quickly get more USDC while banks are closed to resume withdrawals for customers.
Zhao said users can still withdraw other stablecoins, including BUSD and tether. Deposits are not affected, he said.
Binance’s own token called BNB was down around 5% on Tuesday morning, according to data from CoinGecko.
It is normally not good news when a crypto firm has to suspend withdrawals. Over the summer, crypto firms, including lender Celsius, had to suspend withdrawals before finally filing for bankruptcy. There is no indication of such issues for Binance.
In the past 24 hours, Binance has seen $1.6 billion in outflows from its platform, according to a tweet from crypto data firm Nansen posted early Tuesday. Binance has over $60 billion in assets on its platform, Nansen said.
The collapse of FTX and the arrest of its former CEO, Sam Bankman-Fried, has unnerved crypto investors who fear further contagion in the industry.
Binance has been in the spotlight ever since its decision to sell its stake in FTX’s self-issued FTT digital tokens, which preceded the rival exchange’s failure.
Investors have called for more transparency in Binance’s activities. Last month, the company released proof of reserve in which it claims to have a reserve rate of 101%. This means that it has enough assets to cover customer deposits.
But critics said the proof of reservations didn’t go far enough to give assurances about Binance’s guarantee. Mazars, the audit firm used by Binance for its proof of reserves, said in its five-page report that the company “expresses no opinion or assurance conclusion.”
Investors are also monitoring a Reuters report that prosecutors at the US Department of Justice are delaying the conclusion of a criminal investigation into Binance. Reuters, citing four people familiar with the matter, said the investigation is focused on Binance’s compliance with anti-money laundering laws. Binance responded by saying, “Reuters got it wrong again.”
“We have no idea of the inner workings of the US Department of Justice, and it would not be appropriate for us to comment if we did,” the company said in a tweet on Monday.