The Breakdown - Binance Cuts Thousands of Jobs (But Adds Lightning Network Support!)

Episode Date: July 18, 2023

Today on The Breakdown, NLW covers the latest from Binance, including reports from WSJ and CNBC that the company has cut more than 1000 roles and could be headed towards even further cuts. Binance has also followed through on their promise to add support for the Lightning Network. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribeto the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Tuesday, July 18th, and today we are asking what the heck is going on at Binance. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly, All right, friends, how you doing? There are lots of interesting machinations in the crypto industry to catch up on today, and the lead story that we're talking about is about the world's beleaguered

biggest exchange. According to the Wall Street Journal, Binance has laid off 1,000 employees in recent weeks. The reporting, which was published on Friday, noted that Binance had an 8,000 strong headcount globally, so this cut would represent a 12% reduction in staffing. According to a former employees speaking anonymously with the newspaper, the cuts were focused largely on customer service staff. Reportedly, about three dozen customer service employees based in India were among the layoffs. However, the source speculated that the planned round of layoffs could be much larger once complete. Ultimately, they suggested that it could amount to a one-third reduction in head count by the end of the year. CNBC's reporting echoed this magnitude of cuts, with the source saying as many as

3,000 employees could be let go by the end of 2023. Now, a Binance spokesperson confirmed that employees were being let go, but declined to confirm how many. They said, quote, As we prepare for the next major bull cycle, it has become clear that we need to focus on talent density across the organization to ensure we remain nimble and dynamic. This is not a case of right sizing, but rather, re-evaluating whether we have the right talent and expertise in critical roles. CZ, meanwhile, tweeted, as we continuously strive to increase talent density, there are involuntary terminations. This happens in every company. The numbers reported by media are all way off. On the bright side, they just can't resist talking about us. We are still hiring.

Now, rumors of deep cuts at Binance first emerged a few weeks ago. Alongside the rumblings of widespread layoffs, it was reported that at least three senior executives had parted ways with the exchange. Reporting had focused on the dissatisfaction with the way that CZ had handled ongoing investigations from the Justice Department. However, speaking publicly, multiple executives refuted this take on the situation, instead citing a host of personal reasons for their departures. Wall Street Journal reporting on the executive departures speculated that CZ had resisted calls to step down as CEO. With some senior staff thinking that his continued presence as the head of the company,

put the firm survival at risk with serious criminal investigations ongoing. In addition to the layoffs, internal documents have leaked showing that Binance is slashing employee benefits. According to documents viewed by the Wall Street Journal, Binance had wound back benefits on June 19th, including mobile phone reimbursement, fitness reimbursement, and work from home allowances. The internal message stated that quote, considering the current market environment and regulatory climate that has unfortunately led to a decline in profit, we have to be more prudent with our spending. Now on top of this, Binance is also slashing expenses around sponsorships. On Tuesday, they announced that they had terminated their five-year partnership with the Argentine Soccer Association after just one year. Now, strangely,

Binance blamed a contractual breach stating on Twitter that, quote, we regularly evaluate the results of our partnerships around the world, and unfortunately, despite being offered time and opportunities, the AFA has not fully complied with its contractual obligations, which goes against our business values and our partnership principles. Now, for reference, Binance had inked the deal last year on the back of Argentina winning the World Cup. The exchange was both the major sponsor for the national team and the naming sponsor for the National League. By and large, I would say that at this point, the crypto industry has adopted a posture that there is just more to come. Andrew at Api Abacus writes, Update, expecting additional finance news this week, legal and regulatory, and

internal leadership. More than rumblings at this point, a source says, quote, in crypto, if you haven't figured it out by now, where there's smoke, there's usually considerable heat. Dijan Spartans said, someone asked me about the Binance situation, and I started monologing for like 20 minutes. My hypothesis is that they don't have access to enough actual dollars. This is why I mentally bucket them as a crypto-to-crypto-only exchange rather than a crypto-to-feat exchange. Now, in a later tweet, Degin said, regarding Binance, doesn't matter how many millions were made there, they are not owed your loyalty. You paid fees for a service, they provided it, end of transaction. No exchange, no protocol, no project, no bank,

no government is owed your loyalty for life. Personally, I have already significantly reduced my exposure with Binance. I'm not a fan of what is going on with TUSD. I now view Binance is simply the most liquid crypto-to-crypto exchange at the moment. I hope they continue existing, but they are not TBTF infrastructure for me anymore. Even more ominously, YouTube sleuth coffee Zilla wrote, If you want to be a part of the next big story, Binance employees and ex-employees can reach me any time. Now, all of this said, Moon Overlord summed up the counterpoint when he wrote, rather bizarre to see people almost cheering on a potential Binance meltdown. You know we're going to effing zero if that happens, right?

Now, for the sake of completeness, there was one big positive in the Binance world this week. Binance have activated Bitcoin transactions via the Lightning Network. This follows through on a pledge made during Bitcoin fee spikes in March. Binance customers can now deposit and withdraw Bitcoin via Lightning. The major benefits, of course, being faster transaction speeds and lower fees. Now that said, several customers are reporting that the Lightning integration on Binance seems to be falling short on both these factors, with some seeing no reduction in fee compared to standard Bitcoin transactions.

Still, with this move made, a number of Bitcoiners are willing to extend the benefit of the doubt. Brad Mills wrote, Great work, CZ. I know a lot of Bitcoiners don't like CZ because he runs a crypto casino, but he has reverence for Bitcoin and respect for Satoshi. He kept his word in adopted Lightning Network and before Coinbase, I might add. Now, you, Eagle-Ead listener, will have heard that D-Gen Spartan said something about T-USD, and while I don't want to go too deep into it as there's very little, really solid reporting around it, I will give a little bit of what the community is discussing here.

Basically, the rumblings around TrueUSD, which have been growing for the last couple weeks, continued this week as allegations emerged regarding Justin's son's involvement with the stable coin. Now you'll remember that TUSD emerged out of relative obscurity in March when Binance announced a free trading promotion on the Stablecoin's Bitcoin pair. The promotion coincided with an immediate jump in TUSD's market cap, which doubled to $2 billion overnight. TUSD's circulating supply was dead flat for months afterward and then spiked up again to $3 billion in mid-June.

Since then, the market cap of TUSD has reduced slightly, but $2.8 billion worth of stable coins remained in circulation, and almost the entire supply of TUSD is held in Binance-controlled wallets. Details around the minting and redemption of TUSD have been difficult to come by for a long time. At one stage, some amount of redemptions were handled by now bankrupt CryptoCustodian Prime Trust, but these services have been offline since June. Indeed, it appears that no one on crypto-Twitterr is able to find any evidence of recent successful TUSD redemptions. Information about who owns the Stablecoin protocol has also been scarce. A British Virgin Island firms called Tectarix purchased the rights to TUSD from a firm called Archblock back in 2020,

and until recently, marketing material insisted that ArchBlock continued to manage the day-to-day operations. On Friday, TUSD announced that Tectarix was assuming full management of the stable coin, including customer onboarding and compliance. That led to the latest intrigue in this whole situation when, on Monday, news aggregator DB at Tier 10K reported on a lawsuit from ArchBlock's founder, which alleged that Justin's son was behind the acquisition of TUSD. The lawsuit had been filed in March but had gone unnoticed since then

and primarily dealt with the failure to repay a loan of 3.7 million in TUSD and Tether. The lawsuit was voluntarily dismissed, however, on June 7th, so it's a little unclear exactly what happened. D.B.'s reporting included a string of messages which purported to show that Justin Sun had acquired TUSD in September 2020 without the approval of ArchBlock shareholders. It appeared from these messages, should they be legitimate, that Sun was keen to make sure the acquisition remained private, both to the market and to TUSD stakeholders. During the conversation, the person arranging the sale of TUSD to Sun said that it wouldn't be feasible to do the deal in secret, arguing that it would be like, quote, handing over the keys to

$140 million in escrow, and the power to print money and no relevant stakeholders are told. I think for now you have to take everything around this situation with a big grain of salt. You have to think that, you know, the real journalists in this space are furiously digging to find out the truth of what's going on here, and so I anticipate we'll get more better information soon. For now, as with anything in crypto, it's worthwhile to be cautious. A couple more quick ones before we get out of here. Celsius liquidators seem to be heading for the order books, with $59 million worth of all coins moving on to institutional exchange Falcon X on Monday. Late last month, the bankruptcy court gave the bankrupt crypto lender

permission to consolidate all coins into Bitcoin and Ethereum in preparation for a distribution to creditors. Multi-million dollar amounts of polygonsmatic, Link, Ave, SNX, and BNB were moved, and overall Celsius has around 170 million worth of all coins to consolidate. Data provider Kiko noted that the move could put pressure on some tokens due to low liquidity conditions in a report last week. And judging from some of the price action yesterday, that prediction appears to have been correct. Lastly today, kind of a juicy one with some pretty big implications.

BlockFi creditors are claiming that the firm, quote, failed to complete basic due diligence in dealings with FTX and Alameda research. A report published by the Committee of Unsecured Creditors, which was unsecured creditors, which was unsealed on Friday, claims that BlockFi exposed its customers to, quote, losses of a staggering quantum through its exposure to Alameda. The report which was filed confidentially in May is based on a review of 30,000 internal documents, along with interviews and depositions of key individuals at BlockFi, including founder and CEO, Zach Prince.

The allegations are this. Following the collapse of Three Arrows Capital in June, BlockFi called in loans made to Alameda amid the broad drop in crypto markets. Alameda met this call paying down its loans to near zero. Between July and September 2022, BlockFi relent nearly 900 million to Alameda. FTCX had extended a $250 million credit facility to BlockFi in June of that year, which was widely viewed as a bailout for the firm after suffering significant impairment liquidating collateral pledged by 3AC. The creditors report claims that when extending these loans to Alameda, BlockFi had access

to the firm's balance sheet. In other words, that same balance sheet which showed Alameda stuffed with FTT tokens and other worth of Samcoins. I don't think I need to remind you that publication of that balance sheet quickly led to the collapse of FTX after it was revealed by CoinDesk in early November. So despite having access to this information, the report accuses BlockFi of offering, quote, special treatment for FTT in Alameda, that cast risk management principles entirely to the wind.

Going on, the report alleges that warnings from BlockFi's internal risk committee were overruled by Prince, who dismissed calls to increase collateral requirements for Alameda. Instead, Prince said that Blockfi should, quote, offer terms that we think the client Alameda could say yes to. The creditors claim that Prince urged the risk team to learn to, quote, get comfortable with Alameda being a three-arrow-sized borrower, just with FTT and other collateral types instead of GBTC shares. It's the largest, clearest growth opportunity we have, end quote.

The report claims that BlockFi materially misled customers regarding its risk management strategies, asset concentration, and policy for honoring customer withdrawals. Creditors wrote, quote, BlockFi's demise was rooted in business practices and decisions well-proceeding Alameda and FTCS's bankruptcy filing. Now, the creditors committee has been critical of efforts to reorganize BlockFi to exit bankruptcy so far. They say that negotiations have focused on ensuring that executives receive protection from future litigation. They also referred to the tactics of delay while running up legal costs as extortion and argued that they should be allowed to file their own bankruptcy plan, which would liquidate remaining assets immediately. BlockFi, unsurprisingly,

says that it, quote, disagrees with the committee's report. The firm points to its own court filing, which said BlockFi management had not misused customer funds for their own purposes, or directed transactions without reasonable understanding of the risk. The previous filing said, quote, The Special Committee has not uncovered any evidence that the released parties knew, should have known, or reasonably could have known about FTX's and Alameda's true nature. And any legal claims, quote, do not justify prosecution from a cost-benefit perspective. Basically, it sounds to me like BlockFi is not necessarily trying to deny that they saw the balance sheet, which had so much FTT, but they are denying that they are denying that

that would a priori mean that they understood, the fraud going on between FTX and Alameda, whereby Alameda had effectively an unlimited credit line funded by FTX customers. Either way, another nasty example of just how messy these crypto bankruptcies are. But that is going to do it for today. Let's hope for brighter times ahead. Thanks again for listening, and until next time, be safe and take care of each other. Peace.