Ever since Germany’s BaFin and the UK’s FCA issued warnings against Binance, the dominoes have continued to topple. Global regulators are fed up with the world’s biggest crypto exchange.
This last week, three more jurisdictions issued warnings about Binance’s tokenized stocks, joining several others in voicing their concerns about the exchange.
In a press release on Thursday, Italy’s market watchdog Consob warned investors that Binance and its subsidiaries “are not authorized to provide investment services and activities in Italy.” The notice specifically points to Binance’s “stock token.”
Lithuania’s central bank issued a warning on Friday about Binance UAB, a Binance affiliate, providing “unlicensed investment services.”
“Companies that are registered in Lithuania as virtual currency exchange operators are not supervised as financial service providers. They also have no right to provide any financial services, including investment services,” the Bank of Lithuania said.
Also on Friday, Hong Kong’s Securities and Futures Commission announced that Binance is not licensed to trade stock tokens in the territory.
In a statement, Thomas Atkinson, the SFC’s executive director of enforcement, had stern words for the exchange: “The SFC does not tolerate any violations of the securities laws and will not hesitate to take enforcement action against unlicensed platform operators where appropriate.”
Binance responded to the mounting pressure by announcing on its website that it would cease offering stock tokens. Effective immediately, you can no longer buy stock tokens on Binance, and the exchange will stop supporting them on October 14.
As for the unlucky ones who are still holding Binance stock tokens, you apparently have 90 days to try and offload them onto someone else.
The exchange also deleted mentions of stock tokens on its website. If you click on a link to “Introduction to Stock Tokens” on the site, you get a “404 error.” You can still visit the page here, however.
A short-lived bad idea
Binance introduced its tokenized stocks idea on April 12, starting with Tesla, followed by Coinbase, and later MicroStrategy, Microsoft and Apple. (Links are to archives on Wayback machine.)
“Unlike traditional stocks, users can purchase fractional shares of the listed companies with stock tokens. For instance, for a Tesla share that trades at over $700 per share, stock tokens enable investors to buy a piece of the underlying share (e.g., 0.01) instead of the entire unit,” Binance explained on its website.
Prices were settled in BUSD — a stablecoin Binance created in partnership with Paxos, a NY-based company. Binance claims its stock tokens are fully backed by shares held by CM-Equity AG, a regulated asset management firm in Germany.
The exchange also said Friday that users in the EEA and Switzerland will be able to transition their stock token balances to CM-Equity AG once the brokerage creates a special portal for that purpose, sometime in September or early October. However, the transition will require additional KYC.
Binance, whose modus operandi has always been to ignore the laws and do whatever, launched its stock token service two days before US crypto exchange Coinbase went public on the Nasdaq and bitcoin reached an all-time high of nearly $65,000. The price of bitcoin is now less than half of that.
In April, Germany’s financial regulator BaFin warned that Binance risked being fined for offering its securities-tracking tokens without publishing an investor prospectus. Binance went back and forth with BaFin on the issue, trying to persuade them to take the notice down, according to the FT, but to no avail. The warning stayed up.
In June, the UK followed with its own consumer warning, and then one by one, a host of other global regulators issued their own cautions about Binance, and banks began cutting off services to the exchange — essentially a form of slow strangulation.
Binance clearly wasn’t thinking when it introduced those stock tokens. The move appears to have been driven by the hubris of its CEO CZ, who is now realizing that actions have repercussions. Or maybe not, since his recent tweets and a blog post celebrating Binance’s fourth birthday seem to reflect an ongoing detachment from reality.
“Together, we can increase the freedom of money for people around the world, in safe and compliant ways,” he wrote. By freedom, I assume he means, freedom to operate outside the law, or freedom to freeze withdrawals on his exchanges — a frequent user complaint, according to Gizmodo.
FTX and Bittrex
Binance isn’t the only crypto exchange to offer stock tokens. Sam Bankman-Fried’s FTX exchange also offers tokenized stocks (archive) — a service that it added in June. I suspect that a lot of Binance’s business will flow over to FTX, and we’ll soon see similar regulatory crackdowns on FTX.
Like Binance, FTX has a US version of its exchange and a main site.
FTX is registered in Antigua and Barbuda with headquarters in Hong Kong. It offers stock tokens for Tesla, GameStock, Beyond Meat, PayPal, Twitter, Google, Amazon, and a host of others.
Bittrex Global — another exchange that has a regulated US-based arm — also offers an impressive array of stock tokens. The Liechtenstein-based firm added the service in December 2020, according to a press release at the time, noting that “these tokenized stocks are available even in countries where accessing US stocks through traditional financial instruments is not possible.”
FTX and Bittrex also claim their stock tokens are backed by actual stocks held by CM-Equity AG.
Binance Brazil director resigns
Banks are not the only ones distancing themselves from Binance these days.
Amidst the recent drama, Ricardo Da Ros, Binance’s director of Brazil announced his departure on LinkedIn. He had only been with the company for six months.
“There was a misalignment of expectations about my role and I made the decision according to my personal values,” he said.
Other employees have also exited stage left in recent months. Wei Zhou, the chief finance officer at Binance, quit abruptly in June, and Catherine Coley, the CEO of Binance.US stepped down in May — though nobody has heard from her since.
If you like my work, please support my writing. Subscribe to my Patreon account for as little as $5 a month.