Binance's response to allegations of misappropriating user funds is hugely disappointing, hugely frightening or both

For the uninitiated, Binance are facing allegations regarding collateral that was meant to back user funds to the amount of $1.8 Billion. It mainly affects USDC collateral and a derivative of USDC. The sum of money was sent last year to various entities of which most were hedge funds but also included SBF's Alameda Research and Tron founder Justin Sun.

CoinArgos states the collateral meant to back the Binance-Peg USDC was deficient by more than $1 billion on three separate occasions in the peg wallet, and the exchange’s version of its BUSD stablecoin was undercollateralized by more than $500 million for the majority of 2021.

Basically, customer funds that were supposed to be backed, were not as the collateral was sent to a number of entities as mentioned above. Meaning that your supposed $1 worth of stablecoin, probably wasn't worth even close to that, and a market fluctuation could send it the same way Terra USD(and Luna) went. The allegations are bad but frankly, the worst part was Binance's response to all this.

Binance’s chief strategy officer, Patrick Hillmann, was interviewed and he explained away the concerns by simply stating basically that the "real" accounting took place off-chain and the on-chain wallets are merely "containers" for the funds. This, while likely non-ideal at least for customers, is certainly possibly as access to the wallets itself, if that is even necessary and it might not be, can be passed around whether through keys or otherwise.

However, Binance CEO CZ himself came out dismissing everything as "FUD" and claimed that the activities were only “internal rebalancing” and also characterized them as “some old blockchain transactions that our clients have done.” It is hugely suspect that these two executives can't seem to keep a coherent story. Also, as the CEO, you would think someone in that position would give something more concrete as the classic response of a crypto degen to any concerns or criticism. In another view, the situation also smells somewhat FTX-like, such that collateral for customer funds, essentially customer funds themselves are being used without customer notice for the profit of the exchange. And that is looking past the also questionable fact of links to Alameda and Justin Sun.

Granted, I don't expect Binance to fail like FTX because of its humongous size and diverse range of customers, but it is not reassuring on any level to customers.

https://www.coindesk.com/consensus-magazine/2023/03/01/binance-cant-keep-its-story-straight-on-misplaced-18b-usdc/