Wall Street Journal Accuses Binance of Ignoring Market Manipulation by Market Makers
Recently, the Wall Street Journal released a lengthy report that combined interviews with former Binance employees, journalists, and self-collected data. The report alleges that Binance investigators discovered wash trading worth $300 million by the cryptocurrency market maker, DWF Labs, in 2023. However, Binance allegedly ignored the issue and even fired the head of its monitoring team at the time. Binance has since issued a statement denying these accusations.
According to the Wall Street Journal, DWF Labs is a “VIP 9” user of Binance, meaning the company engages in at least $4 billion in monthly transactions. As a market maker, DWF Labs’ main objective is to maintain market liquidity. They typically buy and sell assets simultaneously, participating in trades to keep the market flowing and earning profit from the price difference between buying and selling.
However, in a proposal sent to potential clients, DWF Labs allegedly used its activity in the market to manipulate the prices of specific tokens. This involved artificially inflating trading volumes on exchanges like Binance to create a false sense of high market demand and attract investors.
According to former insiders at Binance, Binance investigators discovered that DWF Labs manipulated the prices of YGG and at least six other tokens, engaging in wash trading worth over $300 million in 2023. This was a clear violation of the terms of use, and they recommended removing the client. However, the head of Binance’s monitoring department was fired after submitting the report.
Binance’s response: We have a robust market surveillance framework and cannot tolerate this behavior
The Wall Street Journal states that after reviewing the case, Binance found insufficient evidence to suggest that DWF Labs engaged in market abuse. The wash trades identified by the monitoring team were believed to be accidental self-trades (the same trader conducting trades with two different accounts) rather than intentional market manipulation.
Furthermore, Binance’s top management believes that the head of the monitoring team had an overly close relationship with DWF Labs, the competitor that filed the complaint. One week after the investigation report was submitted, Binance fired the head of the monitoring team. In the following months, more investigators left Binance, partly due to the company’s cost-cutting strategy and some voluntarily resigned.
In response to the Wall Street Journal’s report, Binance immediately denied any market abuse and vehemently denied any accusations against its market surveillance procedures. “We have a strong market surveillance framework that can identify and take action against market abuse. Any user who violates our terms of use will be removed,” they stated.
Over the past three years, Binance has deleted nearly 355,000 users who violated the terms of use, with transactions totaling over $2.5 trillion.
Binance also reassured its 190 million users on the platform, stating that regardless of the size of their trades, there would be no favoritism. However, Binance emphasized that deleting users is not a decision to be made lightly. The company conducts thorough investigations, using multiple tools, and only deletes users when there is sufficient evidence of a violation.
Binance co-founder, He Yi, also posted on social media, stating that the company’s market maker surveillance is highly strict. Binance ensures its fairness and does not participate in or condone such activities. They also report truthfully to the monitoring team and other regulatory bodies. He Yi stated, “Market makers compete and use shady tactics, but Binance should not be implicated.”
Source:
WSJ, Cointelegraph