Binance Pauses USDC Withdrawals as Outflows Surge to $2B in 2 Days

The world’s top crypto exchange Binance paused USDC withdrawals Tuesday due to a “token swap.” Binance saw a significant surge in withdrawals yesterday after a recent proof of reserves audit and rumors of legal issues raised concerns among investors using the world’s largest cryptocurrency exchange by volume.

CZ Says Users Can Continue Withdrawing Funds After Banks Reopen

Binance temporarily halted withdrawals of the USDC stablecoin after a massive withdrawal surge on Monday. The world’s biggest crypto exchange said it is pausing USDC withdrawals while it completes “a token swap” – exchanging one cryptocurrency for another without the need for fiat money.

Binance boss Changpeng Zhao said in a tweet the crypto exchange is witnessing an increase in USDC withdrawals, which could be signaling that investors are trying to move their money to another platform. The move comes amid concerns about Binance’s proof of reserve report and a potential criminal investigation from the US government.

Zhao noted that any transfers into USDC from another stablecoin known as PAX or Binance’s native token BUSD cannot be carried out without routing through a New York-based bank, which is not yet open. Zhao said he expects the matter will be resolved when the banks open.

“On USDC, we have seen an increase in withdrawals. However, the channel to swap from PAX/BUSD to USDC requires going through a bank in NY in USD. The banks are not open for another few hours. We expect the situation will be restored when the banks open.“

– Changpeng Zhao wrote in a tweet.

Zhao said users are still able to withdraw other stablecoins, including BUSD and Tether (USDT). Meanwhile, the announced token swap could be a way for Binance to secure more USDC rapidly to allow consumers to resume withdrawals.

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Binance Sees Over $2B in Net Outflows Since Dec. 12

The move comes after Binance experienced substantial withdrawals following recent reports about the exchange’s proof of reserve. According to blockchain intelligence platform Nansen, Binance saw more than $2 billion in net outflows since Dec. 12. This marks the highest outflows for Binance since mid-November when the rival crypto exchange FTX collapsed when over 220,000 BTC were pulled out from exchanges.

Last week, Binance published a report by auditing firm Mazars, showing that the exchange’s bitcoin reserves are overcollateralized. The report also discovered a $245 million hole as Binance failed to meet its 1:1 ratio of reserves to customer assets. Binance launched a Proof-of-Reserves (PoR) system last month, allowing users to audit the exchange’s token holdings

Analysts and regulators said the audit contains several red flags. One of these is hiring Mazar instead of one of the big-four auditing firms, former SEC executive John Stark argued. In addition, Reuters reported Monday that US prosecutors are considering filing criminal charges against Binance and its executives for potential money laundering.

Do you think the latest issues surrounding Binance could trigger another crypto market downturn? Let us know in the comments below.