What Went Wrong That Led to the Binance Helium $22 Million Accounting Mishap
Four Binance.us customers have unexpectedly received a total of almost $22 million in cryptocurrency, after the crypto-exchange erroneously credited holders of Helium’s new MOBILE token with the more valuable helium (HNT) token instead.
It appears that most of the mistakenly credited HNT has been sold on by their lucky receivers, with the accidental payout coinciding with a selloff that saw HNT’s price dive from over $7 to an 18-month low of around $3.33.
While Binance has patched the bug that led to the accounting mistake, its error has left it $22 million out of pocket at today’s HNT price, or $263.4 million when using HNT’s all-time high of $54.88 (set back in November 2021).
However, it gets worse, because on-chain analysis appears to indicate that Binance.us had to take HNT legitimately held by its other users to ‘honor’ the HNT it mistakenly attributed to the four lucky recipients.
A Comedy of Errors
What’s most striking about Binance’s mistake is that it went on for a fairly long period of time, spanning from August 23 from September 15. In other words, it lasted for 23 days before someone at Binance.us noticed what was going on and the exchange put a stop to it.
Between 8/23 and 9/15/2022, four wallets slowly and methodically deposited 4,829,043 MOBILE tokens into their Binance US deposit addresses.— Arman Dezfuli-Arjomandi 🎈 (@rawrmaan) September 18, 2022
Due to a bug in the exchange’s systems, they were credited 1 HNT per deposited MOBILE token. 1 MOBILE was only worth <0.001 HNT. pic.twitter.com/5wtBHkzrpc
For whatever reason, Binance’s systems contained a bug that caused it to classify Helium’s new MOBILE token as HNT, which is vastly more valuable. Indeed, one MOBILE token is worth less than one thousandth of a HNT token.
Accordingly, when four wallets deposited some 4,829,043 MOBILE onto Binance.us, the exchange credited these wallets with the same amount in HNT.
It was at this point that these users – who podcast host Arman Dezfuli-Arjomandi describes as “attackers” in the above thread – began steadily selling their newly acquired HNT tokens. Given the large supply they had received, this unsurprisingly caused the price of helium to dip.
But it wasn’t only an accounting bug that contributed to the mess Binance.us has now found itself in.
One other key factor is that it had previously stopped consolidating its users’ HNT deposits to one main exchange address, something which would have enabled it to keep better tabs on what has happening.
On 11/15/2021, they just…stopped. Nearly a year later on 8/31/2022, their main wallet balance fell <6000 HNT–effectively zero.— Arman Dezfuli-Arjomandi 🎈 (@rawrmaan) September 18, 2022
Empty wallet = no liquidity for user withdrawals. The next day, they swept 16,825 of users’ deposit addresses to recover the main wallet’s balance. pic.twitter.com/uFqSGE1OIS
Interestingly, the exchange suddenly swept its users’ HNT deposits on September 1, some eight days after the accounting mishap had begun taking effect and the four lucky MOBILE wallets had begun steadily selling off their new funds.
However, the HNT swept to Binance.us’ own address appears to have been mostly withdrawn by these four users, with 4.5 million HNT being sent elsewhere (eg. Binance.com) and sold.
The bleeding didn’t stop until only 310k HNT were left in the Binance US main wallet.— Arman Dezfuli-Arjomandi 🎈 (@rawrmaan) September 18, 2022
It’s hard to say whether the drain was from attackers or arbitrageurs, but it’s likely that it was a combination of both. pic.twitter.com/iBiJZfeswc
The exchange didn’t notice what was going on until its wallet of 4.5 million HNT had been reduced to only 310,000.
But now that it has stopped the bug, it owes around 4.8 million HNT to its users, meaning it probably has to buy this amount on the open market.
Helium (HNT) Rises Following Revelation of Binance Accounting Mishap
Needless to say, the unfolding situation is less-than great for Binance.us or Binance. On the other hand, it’s arguably good for HNT, which has risen in the hours since news of the mishap began being shared.
Since September 16 (when it first became public knowledge), HNT has climbed from $3.93 to a current price of $4.62. This is an appreciation of 17.6%.
The reason for this is likely twofold: 1) Binance has begun buying HNT in order to compensate its users; and 2) traders have begun buying up HNT because they suspect that Binance will be obligated to purchase some 4.8 million of the tokens.
And that’s only what’s visible on-chain. So where do we stand?— Arman Dezfuli-Arjomandi 🎈 (@rawrmaan) September 18, 2022
– Zero communication about this from Binance US to its customers since the CoinDesk story broke yesterday
– Disabling of HNT deposits/withdrawals indefinitely
– Apparently near zero funds to back customers’ deposits
Of course, as welcome as this rise is for anyone who still actually has access to their own HNT, it raises big questions about the reliability and security of Binance.us, and Binance more generally.
The fact that Binance is yet to comment publicly on the mistake also doesn’t help its reputation much either.