An on-chain analyst raises concerns about DailyCoin’s BNB-backed Binance SAFU fund

An on-chain analyst raises concerns about the BNB-backed Binance SAFU Fund
  • The Binance SAFU Fund consists of 44% BNB of the total fund.
  • It consists of $270 million, compared to $300 million for BUSD on Binance.
  • One of the reasons FTX failed is that it relied so heavily on the original FTT token.

Binance’s Safe Asset Insurance Fund for Users (SAFU) has come under fire from prominent on-chain expert Willy Wu. It is not a good idea, in his opinion, to invest “occurrence-related BNB” in a SAFU fund. Willy Woo draws parallels between this and how cryptocurrency exchange FTX handles its insurance fund, which is backed by the exchange’s native FTT token.

In a tweet posted on November 25, the on-chain analyst revealed that the SAFU fund now consists of $367 million in BNB, representing 44% of the total fund. Also, it has just $270 million in Bitcoin, while Binance’s dollar-pegged stablecoin BUSD is worth $300 million. Due to fluctuations in the value of the cryptocurrency, the value of the fund has fallen below $1 billion.

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The Binance SAFU Fund is backed by 44% of BNB, not SAFU

According to Willy Woo, the SAFU insurance fund is risky because BNB only backs 44% of the fund’s reserves. This compares to the sharp drop in the FTT token during the FTX crisis which was the original coin of the stricken exchange. It would be the same as if FTT tokens were the main support for FTX’s insurance pool. notice:

“While I commend Binance for having such a fund, there is no sense in putting BNB associated with the occurrence there. How would we feel about FTX having an insurance fund full of FTT?” On November 9th, Binance, the world’s largest cryptocurrency exchange, added $300 million in Bitcoin and $700 million in BNB and BUSD to the mandatory insurance pool. However, Wu noted that the fund has shrunk to $837 million due to market volatility.

The on-chain analyst also provided Bitcoin and BSC addresses that can be used to confirm SAFU Proof of Reserves. The exchange plans to use evidence based on the Merkle Tree of Reserve System to prove that its holdings are worth their full value. However, the $837 million comes close to $68 million in Binance Proof of Reserve and about $800 million in Binance custody.

on the flip side

  • Historically, according to Willy Woo, the Binance SAFU Fund may take a hit in volatile market conditions. The success and stability of Binance is directly related to the performance of BNB. As such, it raises concerns about the inclusion of BNB in ​​the insurance fund.

Why should you bother

As the cryptocurrency industry continues to grapple with contagion risks from the FTX crisis, a bailout fund can help restore investor confidence. But it is worth noting that Sam Bankman-Fried apparently used FTT to support his exchange and trading subsidiary Alameda Research, which ultimately led to the scheme’s collapse.

Related reads:

Binance publishes Proof of Reserves revealing $69 billion in assets

Sam Bankman-Fried reacts as Binance prepares to offload $529 million in FTX (FTT) tokens

See the original on the Daily Queen

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