Resurfaced Binance Whitepaper Change Prompts Transparency Questions
After a significant change in the major crypto exchange Binance's whitepaper resurfaced, it raised numerous questions regarding transparency and accountability within the crypto industry, which is now lost in speculations, while Binance does not provide clear answers.
As reported last year, in April 2019, Binance made a change to its original whitepaper and published version 1.2, according to which quarterly burns of Binance Coin (BNB) depend on the trading volume on the exchange. Previously, the company said that they will use 20% of their profits to buy back BNB and destroy them.
Binance CEO Changpeng Zhao explained at the time, "We recently updated our whitepaper to better describe how we actually conduct the burn. For example, we removed the buy back reference because we actually don’t repurchase BNB." Importantly, Zhao acknowledged that Binance "also removed the profit language because some regions tend to associate profits with securities, and we would like to distance BNB from that."
Meanwhile, back then, a Binance spokesperson reportedly told The Block that Binance will still burn 20% of profits within the process described in the new version of the white paper.
And now, the Cryptoverse is confused.
Not many in the community seem to have known about this change which investors, researchers, analysts and others are likely to find relevant if they've been using it in their calculations and reports. In the past day, the news has resurfaced and finally exploded online, with a number of questions being asked, such as: Why haven't they corrected the reports coming out and containing supposedly wrong numbers? Or are these numbers still correct?
For example, Ryan Selkis, founder of crypto researcher Messari, said in his newsletter that Messari's summary of this weekend's BNB quarterly token burn was incorrect as Selkis didn't know about the change and had the report include the implied Binance revenue that the burn represented. The original 20% of Binance’s quarterly profit BNB burns, "made BNB a pretty interesting token because you could value it kinda sorta like you would a security," he said, adding "which counterintuitively is bad in crypto thanks to 80-year-old U.S. regulations."
Selkis, however, explained that Binance may actually be burning "MORE BNB than they initially committed to, assuming their profits are lower than the burn implies. It’s possible they are still using 20% of their profits to buy and burn BNB on the open market, and then burning additional BNB from their treasury reserves as well," but he also expressed hope that "Binance, other major exchanges/wallets/custodians and token teams will work with us to end the madness of arbitrary, choose-your-own-adventure stakeholder communications."
.@cz_binance is Larry right?— Ryan Selkis (@twobitidiot) January 21, 2020
Was this a burn of 20% profits, or just a random burn?
I don’t like it when we’re wrong, and this is an example of why we’ve been pushing teams for standardized disclosures. https://t.co/KzMTdOV3Ix
I wrote this in Feb. 2018, before the WP language was changed pic.twitter.com/UokLRQKTat— nic carter (@nic__carter) January 21, 2020
Meanwhile, developer Udi Wertheimer also stated that, just because Binance reworded the whitepaper, "doesn’t mean that they do not in practice follow the letter of the original wording."
This is equivalent to a shareholders' agreement being unilaterally changed. The white paper laying out the capital return mechanism is more than just documentation.— nic carter (@nic__carter) January 21, 2020
Additionally, Jeff Dorman, chief investment officer of Arca, a Los Angeles-based crypto asset manager, tweeted that "This is a poor reflection on the industry re: lack of disclosures. It doesn't affect our conclusion much as an investment. Unfortunately, token issuers have different concerns (legal) than investors (accuracy)." Alex Woodard, research analyst at Arca, posted a thread on how they interpret the numbers that came out of the latest token burn of 2.2 million BNB (1.1% of total supply) worth over USD 38 million (with a disclosure that Arca holds a position in BNB). His conclusions are as follows:
- the Q4 burn represents the fourth consecutive quarter of growth in profits for Binance;
- the 2.2 million BNB represents a token retirement rate of 1.51% (tokens burnt/shares outstanding), well above their average of 1.08% per quarter, which pushes back against the critique of buyback and burn models not burning supply at quick rates;
- trading volumes are still well below 2017 and 2018 levels;
- their future have often represented more volume than their spot market;
- due to Binance's fee tiers, it can be assumed that the amount of smaller traders who don't qualify for fee discounts has increased;
- the current Price to Burn ratio is 66.30, well below the average of 108.67;
- the current Price to Implied Earnings ratio is 13.26, well below the average of 21.73.
Though @cz_binance has stated that the revenue growth has come from Futures, I don't think that tells the full story. We can find the Average Trading Fee by dividing the Implied Rev by Trading Volumes.— Alex Woodard (@Crypto_Alex17) January 20, 2020
As we can see the implied avg trading fee has increased the last 2 quarters pic.twitter.com/20F0Yx2Ziv
Binance CEO retweeted this analysis by Arca, saying that it's "very insightful," but later, the CEO, known for his activity on Twitter, did not respond to multiple requests by industry players to clarify the situation. We've asked Binance for further clarification.
Also as reported, Binance decided last year to burn its own stash of BNB, and this may fit in with the wish to avoid the regulatory hurdles in the U.S.
Cryptocurrency analyst Gary McFarlane told Cryptonews.com at the time that Binance is arguably beginning to find its own token as much of a hindrance as a help to its own business plans. "What was previously seen as a strength has now become a weight tied around its neck as far as the U.S. market is concerned," he said.
No, I was making the assumption that updating their white paper w/out disclosing it was for legal reasons. We've heard from many token issuers that they are avoiding anything that appears like they are speaking directly to investors, or about their token as an investment.— Jeff Dorman, CFA (@jdorman81) January 21, 2020
Meanwhile, BNB is currently (12:16 PM UTC) trading at c. USD 17.7. It went up 1.5% in the past 24 hours and is unchanged in a week.