Binance, the world’s largest crypto exchange, announced it’s pausing withdrawals of the USDC stablecoin following a spike in user activity that resulted in $US1.9 ($3) billion in withdrawals in the last day. That spike, according to CoinDesk, comes amid possible red flags revealed in its recent proof-of-reserve report.
But Binance announced on Twitter early this morning that the exchange is simply conducting a token swap with the USDC stablecoin, hence the decision to pause user withdrawals. A token swap, per ByBit, “involves the exchange of token types between two parties, from one blockchain to another.” The USDC is called a stablecoin since it’s value is 1 to 1 with the U.S. dollar.
Binance CEO Changpeng Zhao elaborated in a tweet that as Binance saw heightened user withdrawals of USDC on Sunday and in the early hours of Monday morning, the exchange made the decision to pause withdrawals as the banks that could honour them were closed. Reuters, citing data firm Nansen, reported that these withdrawals of USDC totaled $US1.9 ($3) billion. Zhao also encouraged users to withdraw other stable coins, like BUSD.
On USDC, we have seen an increase in withdrawals. However, the channel to swap from PAX/BUSD to USDC requires going through a bank in NY in USD. The banks are not open for another few hours. We expect the situation will be restored when the banks open. 1/2
— CZ 🔶 Binance (@cz_binance) December 13, 2022
“These are 1:1 conversions, no margin or leverage involved. We will also try to establish more fluid swap channels in the future. In the meantime, feel free to withdraw any other stable coin, BUSD, USDT, etc,” Zhao added in a follow-up.
While an exchange pausing withdrawals is not inherently a bad thing, exchanges that have made that decision in the past have not fared well. Crypto exchange Celsius paused withdrawals for its 1.7 million users this past June, before filing for bankruptcy the following month. Binance, on the other hand, paused withdrawals around the same time as Celsius, but only temporarily as the value of Bitcoin fell while claiming in a tweet that the pause was “due to a stuck transaction causing a backlog.”
Binance’s current withdrawal pause comes as investors are already skittish as fellow cryptocurrency exchange FTX faces ongoing fallout.