is Wintermute an enemy of defi?

wintermute is a “market maker” which supposes to be market neutral

yet sources have informed otter of numerous examples of Wintermute dumping defi 1.0 tokens

today we will take a look at some examples

like retweet and read on!

🦦🧵

on 16 september 2023

wintermute was found sending $LINK, $COMP and $AAVE

in the case of $LINK the tokens found their way to Coinbase (presumably for selling)

the tokens were cunningly sent not through the main Wintermute address but through a proxy address

1 hour after the transfers above, Wintermute *coincidentally* receives $426,000 worth of ETH from Coinbase

*Coincidentally” a figure that’s really close to the COMP value it has sent out an hour ago

also coincidentally $COMP token price started to take an unnatural plunge

the same could be said for the other tokens on eth basis

to give a fuller picture of Wintermute’s transactions of that very same day, it seems that $MKR and $CHZ were not spared either

both mkr & chz were sent to CEX

why would a market neutral crypto market maker be caught selling tokens for stables & eth?

is it relevant to wintermute hack exactly 1 year ago?

happy anniversary of $160m hack @wintermute_t

WE NEED ANSWERS @wishfulcynic

1. why are large amounts of defi tokens from wintermute finding their way to centralized exchanges?

2. why is Wintermute receiving large amounts of corresponding stables & ETH from CEX shortly after sending tokens to CEX

3. are these activities market neutral?

4. will Wintermute please give warning before dumping on us plebs?

5. is Wintermute the reason why defi is dumping so badly?

otter has written about wintermute previously before

you can read about it here

https://x.com/otteroooo/status/1650148520559792129?s=20

as you, the people, have requested

otter will be more proactive in investigating onchain dumpoooors

https://x.com/otteroooo/status/1703325626768540075?s=20

tagging some defi founders & original thinkers

@DefiMoon
@RuneKek
@ChainLinkGod
@Ninjascalp
@SalsaTekila
@crvUSDbull
@Cryptadamist
@ParrotCapital
@rleshner
@StaniKulechov
@lemiscate
@AaveAave
@HsakaTrades
@inversebrah
@nay_gmi
@emgurevich
@napgener
@DegenSpartan
@NotChaseColeman

Is Wintermute dumping defi 1.0 tokens on us plebs?

an otter thread on a series of unholy coincidences about

Wintermute and it's CEO

like, retweet and read on

🦦🧵👇🏻

in a previous otter thread

otter dug deep into the link between The Block and Wintermute

https://twitter.com/otteroooo/status/1646361205186113537?s=20

otter wasn't done digging into Wintermute

here goes a series of unholy coincidences regarding Wintermute

Unholy coincidences

1. timing
2. profile pics
3. diminished monopoly


Unholy coincidence #1: timing

otter has a knack for calling things out right before they happened

otter called the Luna crash two days before it did

otter called Celsius & FTX a ponzi for months

everyday folks like you who heed the call managed to escape

and less than 24 hours after otter's thread

highlighting the connection between The Block & Wintermute

The Block wrote a hit piece against one of Wintermute's competitors

coincidental timing right?

most articles from The Block are written by one person

yet this article was so important to them

The Block literally set three employees for a piece

like a bevy of otters

at least they bothered with an informative disclaimer this time

🦦

Unholy coincidence #2: profile pics

This entire fiasco was sparked by a tweet from @nay_gmy

let's take a closer look at nay_gmy profile pic

🦦

now let's take a closer look at @EvgenyGaevoy's (Wintermute CEO) profile pic

🦦


waaaaait a second!

do you see what otter sees?

Wintermute CEO and nay_gmy both have the same anime profile pic!

of all the animes...

of all the characters...

what are the chances of this unholy coincidence?!

🦦

how coincidental!

that

the person leaking a competitor's practices

the person leaking a competitor's legal contracts

the person making memes about competitors

has the same profile pic character as

the CEO of a company that stands to benefit

from tearing a competitor down

now don't get otter wrong

otter is not saying that @nay_gmy and @EvgenyGaevoy

are one and the same person

nor is otter saying that Evegeny Gaevoy and nay_gmy may be close associates

nor is otter saying that a crypto market maker will resort to

using alt accounts to attack competitors

no, no, no, no, noooooo

otter is simply laying the facts out for you

to examine

and you make your own conclusions

it is true

that the hit piece came

right after otter discovered the unholy alliance?

it is true

that the whistleblower nay_gmy

has the same anime character as Wintermute CEO?

we merely live in a world of unholy coincidences

🦦

unholy coincidence #3: diminished monopoly

let's talk more about Wintermute business model as a market maker

who do they make markets for?

projects who issue tokens hires them

sends them a bunch of pre-mined tokens

for Wintermute to make a trading market

Wintermute may do this through a "loan"

which we have famously seen in the Arbitrum scandal

which was when Wintermute conspired secretly

behind the community's back

to get a governance-UNapproved loan of $ARB

from the Arbitrum team

when Wintermute cuts such an unholy backroom deal

it can confidently put up quotes in

on both sides of the order book and profit through a spread

without purchasing inventory of the token

which in this case was $ARB

it gives Wintermute

a special advantage over other MM firms

if any other MM wanted to profit

from the spread of a high volume coin

they would need to hold inventory

but

as Wintermute suffers through hacks

maybe, just maybe

teams are worried to lend them tokens

after all

you don't lend to someone you are not sure of

right?

https://twitter.com/otteroooo/status/1646361242494447616?s=20

Wintermute may be facing stiffer competition

from other MM companies too

🦦

could it be possible that Wintermute is being backed into the corner?

could it be possible that Wintermute is acting out of desperation

using alt accounts and affiliated media to harm its competitors?

otter doesn't know

but one thing otter knows, is the evilness of hoomans

this thread has gotten long enough

perhaps the next one will be about market maker shenanigans

wash trading

market manipulation

and the likes

thanks for reading this far

otter would like to know what you think

IS WINTERMUTE UP TO SOME UNHOLY ACTIVITIES?

if you enjoy otter's tweets

please do think of donating

half goes to charity

https://twitter.com/otteroooo/status/1590949632104071170

like & retweet the first tweet to support otter!

https://typefully.com/otteroooo/MHkf4NN

Unholy Coincidences about Wintermute and its CEO: An Otter Thread

DWF was all over otter's news feed this week

otter loves a good scandal so otter went digging

and what otter found

was that we may be caught up

in a narrative war between two MM companies

but first, like & retweet and enjoy this tale

🦦🧵👇🏼

DWF was brought to otter's attention with the memes and posts by

@HsakaTrades
@0xtuba
@WuBlockchain
@tristan0x

DWF seems to be a market maker (keep in mind for later)

DWF is a new company, established less than a year ago

why all the sudden attention at the same time?

it all felt coordinated

so otter went a-digging

the first crypto publication to fire DWF into our feed this week was an article by @yogita_khatri5 at @theblock__

to jolt your memory

The Block has:

1. received secret funding from FTX stolen funds to keep the lights on

2. exCEO received money from SBF & Alameda to buy a mansion in Bahamas

3. accused by CZ to run hit pieces on Binance

4. deleted their previous "journalistic pieces"

🦦

1. received secret funding from FTX stolen funds to keep the lights on

https://twitter.com/otteroooo/status/1602727850376802304?s=20

2. exCEO received money from SBF & Alameda to buy a mansion in Bahamas

@CoinDesk

3. accused by CZ to run hit pieces on Binance (a competitor to FTX)

https://twitter.com/cz_binance/status/1560261043213201408

4. deleted their previous "journalistic pieces"

what are they hiding...?!

why would a news outlet delete their news archive?!‼️

@davidgerard

its clear otter is no fan of The Block since 2022

then

The Block took on Evgeny, Wintermute CEO as a board member

otter's alarm bells rang

🦦🚨‼️

otter wonders

why would a market maker CEO be a board member of news company?

is he there to provide journalism expertise?

is he there to ensure ethical journalistic standards?

what's more, they claim he's doing this as a charity!

no money changed hands!

wait a minute!

no money changed hands because..

the money was moved before!

The Block itself disclosed two weeks later that Evgeny "holds an equity stake"

oooooooops!

what a sly selection of words from @evgenygaevoy's previous tweet to mislead us

retweet this everybody

🦦


so if @cz_binance was right about The Block being used to write hit pieces on Binance

while writing puff pieces on FTX instead of criticizing and examining FTX (the hand that feeds The Block)

is it possible that they are at it again?

always follow the money

now we know there's an unholy alliance between

@TheBlock__ and @wintermute_t

Has journalistic integrity been compromised by Wintermute?

the biggest news this month is about how Wintermute received $ARB tokens to dump onto retail BEFORE THE DAO voted

one may even argue that because of Wintermute colluding with Arbitrum team behind the DAOs back partially contributed to

the price of $ARB dropped from $11.1 (listing price) to the $1+ that it is today

after all

Arbitrum team only sent $ARB, and not stables or eth to purchase

alleged dumping of the airdrop got us all hot and bothered

without the dumping our $ARB airdrop value may be 10x more

were we airdrop-rugged by Wintermute?

the usual cast of investigators have their eyes on Wintermute now


Did a bit of digging into Wintermute

Wintermute lost $160 million in a September 2022 “hack” on their DeFi operation

another $59 million in FTX

this "defi hack" is pretty interesting

why are tokens simply sitting in a wallet?

these are supposed market makers

why isnt the funds being deployed as liquidity in the order books where they belong

were these @wintermute_t profits?

maybe @TheBlock__ should investigate?

The Block may have never investigated Wintermute

But @Protos sure did

And Protos may be the only crypto news media worth following

Drop the good folks at Protos a follow

https://twitter.com/Protos/status/1644254531708936193?s=20

maybe if the CEO wasn't busy sitting on news media boards

they would have more time to be careful against hacks, leaks & losing money

according to @quant_arb

Wintermute (WMT) is a dumpster fire

here is what @davidgerard has to say about Wintermute surprising ascend

he runs an amazing blog

drop the man a follow too

back to the DWF narrative

why is DWF in the news two weeks after competitor Wintermute CEO sits on a news media board of directors?

is The Block used to fire hit pieces at competitors of its owners yet again?

we may never know the answer

yet one thing is for sure

when a narrative in crypto comes sudden

and coordinated

there's always more than meets the eye

are we baited into a narrative

because one MM company is losing to another newer MM?

or to divert attention away from $ARB airdrop dumping?

don't get otter wrong

otter isn't defending DWF

all hoomans are dirty evil creatures

otter just wants to protecc

protecc your net wealth

protecc you from predatory narratives

protecc our airdrops from dumpooooors

🦦

who is otter...?

https://twitter.com/otteroooo/status/1597605022283333632?s=20

this thread would not be possible without them:

@HsakaTrades
@0xtuba
@WuBlockchain
@Tristan0x
@cz_binance
@CoinDesk
@davidgerard
@TheBlock__
@wintermute_t
@cryptadamist
@dirtybubblemed3
@Bitfinexed
@ParrotCapital
@BearNakedCrypto
@bigmagicdao
@sat0moto
@ParrotCapital

@waveninja1
@quant_arb
@belsasser84
@Protos
@joseandresbar20
@ChainLinkGod
@ThorHartvigsen
@0xxghost
@MaharlikaMark
@EvgenyGaevoy


The Narrative Wars

otter spoke about earning retirement wealth through due diligence earlier

folks who acted on it made millions of dollars

now otter is going to show you some due diligence

not financial advice

least you could do is like & retweet this please

🦦



otter was one of the few people who called SBNY and Signet into question

before both were taken offline by authorities

anyone who was shorting SBNY made max amount of money

millionaires were made that day

 https://twitter.com/otteroooo/status/1615044621608030215

but first who is otter...?

https://twitter.com/otteroooo/status/1597605022283333632?s=20

In today's thread we will cover:

a. bank failure context
b. MCB clients
c. Auditor red flag
d. Asset liabilities mix
e. How the pros profit

None of this thread should be construed as financial advice

Consider this as due diligence, bedtime reading, anything but financial advice

A little context about $MCB

https://twitter.com/0xManBun/status/1641671490889461761?s=20

b. MCB clients

MCB has been banking CryptoCom for some time

CryptoCom has been in the eyes of online investigators recently for a couple of reasons

- blockchain evidence
- retreats in many jurisdictions

MCB and Cryptodotcom are embarassed with their relationship

https://twitter.com/Cryptadamist/status/1641617993158336515?s=20

- blockchain evidence

https://twitter.com/BoringSleuth/status/1627912380586885120?s=20

- retreats in many jurisdictions

https://twitter.com/Cryptadamist/status/1641854009676791844?s=20

c. Auditor red flag ⛳️

MCB auditor found a "critical audit matter"

When auditors ring alarm bells, we listen

the key issue here seems to be that the allowances for loan losses is insufficient for $MCB

https://twitter.com/Cryptadamist/status/1643448666739335170

If a bank does not have sufficient loan losses allowance, it can lead to several negative consequences

A loan loss allowance is an amount that a bank sets aside to cover potential losses from loans that may not be repaid in full

the risks are

i.  Financial Losses

If the bank experiences loan losses that exceed its allowance, it may have to write off the difference as a loss, which can negatively impact its financial position



ii. Regulatory Intervention: Banks are required by regulators to maintain sufficient loan loss allowances to cover potential losses. If a bank does not have enough loan loss allowance, it may face regulatory intervention, such as fines, sanctions, or even closure (like SBNY)


iii.  Credit Downgrades: If a bank experiences significant loan losses that exceed its loan loss allowance, credit rating agencies may downgrade the bank's credit rating

this could very well start a downward spiral for the bank

Overall, insufficient loan loss allowance can be a serious problem for a bank. It can lead to financial losses, regulatory intervention, credit downgrades, and damage to the bank's reputation

d. Asset liabilities mix

The good folks at Vidar Research looked into the balance sheet and found flaky deposits, illiquid assets

https://twitter.com/vidar_research/status/1641432688803602432?s=20

problem with flaky crypto exchanges deposits is

when the banking regulator comes to you and demand you unbank the crypto exchange for whatever reason

the bank suddenly loses a sizable deposit base!

don't forget that unbanking one crypto exchange can be many people

RT this

🦦

the assets side of the balance sheet is equally troublesome

most of MCB assets don't qualify for the Fed's rescue program

much badder fact is that its stuck in CRE loans

and CRE loans are in all the wrong news these days

https://twitter.com/vidar_research/status/1641470475451727875

now otter is not a pro

but several folks on FinTwit have a great pro record

we have Ser @eliant_capital who has a knack to find "zee ponzi banks"

https://twitter.com/eliant_capital/status/1641502072976597000

an astute short seller may not do a naked short sell

but buy put options on MCB

this limits your downside (to the purchase amount)

and gives greater upside

options have leverage effect too

the degen leverage lover can choose to max lev

- short dated puts

- deep otm

if you didnt understand what was all that in the previous tweet

you should NOT be buying put options

leave the generational wealth to others please

again, no part of this thread is financial advice

do your own research

🦦

this thread is built on the shoulders of the following giants

@Cryptadamist
@vidar_research
@0xManBun
@BoringSleuth
@MikeBurgersburg
@AlderLaneEggs
@ParrotCapital
@eliant_capital


please like & retweet the otter's first tweet of the thread!

https://typefully.com/otteroooo/16DPHla

Otter's Take on MCB

Is Binance in trouble with the recent "interpol red notice" for CZ?

Here's the game theory breakdown

You withdraw, Binance no trouble (-1)

You withdraw, Binance close withdraw (+100)

You no withdraw, Binance no trouble (-0)

You no withdraw, Binance close withdraw (-100)

Withdrawing from Binance is the only positive EV action

Leaving funds on Binance is hugely negative EV action

Just ask the fools who have their funds stuck on FTX

At least FTX an American company is undergoing bankruptcy; one gets some back after years

But if Binance rugs...

what you gonna do?

fly over to Shanghai and ask the authorities for help?

China banned coins

fly over to Dubai and ask the authorities for help?

Not going to happen

Binance is even running out of their home grown stables

https://twitter.com/52kskew/status/1642903392778616833?s=46&t=TJqY7T601qP_XhXVAViauA

Turns out Binance Recovery Initiative was to save itself...?

https://twitter.com/leomschwartz/status/1641818517023477761?s=46&t=TJqY7T601qP_XhXVAViauA

Forget not that when Voyager and several others were melting up

SBF ran a rescue fund too

Nobody saw a single cent of that fund

There is only one thing to do now if you've got funds in Binance

And it starts with W

🦦

Game Theory Analysis of Binance's Interpol Red Notice

some time back otter wrote a cryptic message filled with alpha

all who acted on it profited

we have made retirement money

many made millions in dollars

a short victory lap thread

🦦👇🏻🧵

here's the tweet

https://twitter.com/otteroooo/status/1615044621608030215?s=46&t=TJqY7T601qP_XhXVAViauA

since then $sbny has fallen to zero

signet is no longer operational

silvergate has lost 80%

key vision development (Binance) sued by CFTC

if you were shorting SBNY and/or silvergate

congrats, you've shorted it to zero - max profits

if you had options on SBNY and/or silvergate

congrats, you've made a 100x in less than 2 months

heres Senator Sinema in Senate Banking Committee wondering

how in tarnation did otter and gang do better than bank regulators?

let otter tell you how

🦦👇🏻

https://twitter.com/WallStreetSilv/status/1640832378829516803/video/1

like, retweet the top tweet above

all retweetors get roped into a group

we find the next 100x

maybe

🦦

You can read the unrolled version of this thread here: https://typefully.com/otteroooo/uaJaM6R

A Cryptic Message and Profitable Actions

“I HAZ NO CONFIDENCE IN OUR
GEOFENCING.”

&

“can barely buy an AK47 with 600 bucks.”

must be the two funniest quotes

in CFTC against CZ, Binance & Samuel Lim

otter read all 74 pages to find you the lols

a thread for light reading

🦦👇🏼🧵

According to a legal document filed by the CFTC, Zhao's strategy of not implementing effective compliance controls at Binance was widely known within the company

#Binance #cryptocurrency

In a chat from January 2019, a senior member of Binance's compliance team discussed their plan to "clean up" the presence of U.S. customers on Binance. They explained that "Cz doesn't wanna do us kyc on .com."

#compliance #KYC

According to CFTC, Binance had a financial incentive to avoid subjecting customers to meaningful KYC procedures. In February 2020, Lim acknowledged that if Binance's compliance controls were "too stringent" then "[n]o users will come."

Despite knowing about Binance's compliance failures, Zhao, Lim, and others publicly represented that the platform had effective compliance controls. In August 2019, Lim assured a state financial regulator in the U.S. that "our [compliance] program provides for AML/CFT controls."

Four months later, in a message to a colleague, Lim admitted that ".com doesn't even do AML namescreening/sanctions screening." #compliance #AML

Binance also intentionally tried to hide the scope of its compliance program's ineffectiveness from its business partners.

In October 2020, Binance underwent a compliance audit to satisfy a request from Paxos.

But Binance purposely engaged a compliance auditor that would "just do a half assed individual sub audit on geo[fencing]" to "buy us more time."

In November 2020, Binance's Money Laundering Reporting Officer ("MLRO") exclaimed to Lim in a chat, "I HAZ NO CONFIDENCE IN OUR GEOFENCING."

Binance officers, employees, and agents have acknowledged that the platform has facilitated potentially illegal activities. In February 2019, Lim explained to a colleague that terrorists usually send "small sums" on Binance, as "large sums constitute money laundering."

Lim’s colleague reply to the comment from the previous tweet:

 “can barely buy an AK47 with 600 bucks.”

🦦

With regard to certain Binance customers, including customers from Russia, Lim acknowledged in a February 2020 chat: "Like come on. They are here for crime."

In July 2020, a Binance employee wrote to Lim and another colleague asking if a customer whose recent transactions "were very closely associated with illicit activity" and "over 5m USD worth of his transactions were indirectly sourced from questionable services"...

and asked if he should be off-boarded

Lim instructed to let the customer open a new account and continue trading on the platform

click this link if you would like to read the civil action in its entirety

keep in mind these are all allegations, which are unsettled in court

how did CFTC access these messages?

was there a mole or traitor?

https://www.docdroid.net/60YAbCz/cftc-binance-pdf

please like, retweet and follow the otter

🦦

https://typefully.com/otteroooo/wBiq2UF

Funny Quotes in Legal Documents Against Binance, CZ & Lim

As the regulatory noose tightens around CZ and Binance, coins of decentralized exchanges such as GMX outperforms BNB

Like, retweet and read on for some alpha

🦦🧵👇🏻

Centralized exchanges (CEXs) require a central authority to manage user accounts, deposits, and withdrawals. This makes them vulnerable to government oversight and regulation

In contrast, DEXs operate on decentralized networks and are not controlled by any single entity. This makes them more resistant to government intervention.

Because DEXs are not centralized, they cannot be shut down or seized by government authorities. This means that they are less vulnerable to regulatory blowback.

DEXs use smart contracts to execute trades, which means that transactions are transparent and immutable. This makes it difficult for regulators to track and monitor activity on the platform.

DEXs do not require users to provide personal information or undergo KYC/AML checks. This makes it more difficult for regulators to identify and track individual users.

Unlike CEXs, DEXs do not hold users' funds in custody. This means that users have full control over their own assets and are not at risk of losing them if the platform is shut down.

Because DEXs are open source, anyone can participate in the network and contribute to its development. This makes it more difficult for governments to regulate or control the platform.

DEXs operate on a peer-to-peer basis, which means that trades are executed directly between users. This eliminates the need for a central authority to manage trades, reducing the platform's vulnerability to regulations. Peer to peer is exactly how Satoshi envisioned Bitcoin!

DEXs operate on a global scale, which means that they are not subject to the jurisdiction of any single government or regulatory body. This makes it more difficult for regulators to enforce their rules on the platform.

Because DEXs do not rely on a central authority to manage trades, they can operate 24/7 without interruption. This makes them more accessible and convenient for users around the world.

Because DEXs are decentralized, they are not subject to the same operational risks as CEXs. This means that they are less likely to experience hacks, outages, or other technical issues.

Because DEXs are community-driven, they tend to have more transparent and democratic decision-making processes. This reduces the risk of corruption or abuse of power within the platform.

DEXs are still in their early stages of development, which means that there is still plenty of room for innovation and improvement. This makes them an exciting and dynamic space to be in.

By embracing DEXs, we can create a more open and decentralized financial system that empowers individuals and communities around the world.

In conclusion, DEXs are more protected against regulatory blowback than CEXs because they are decentralized, transparent, and community-driven. As the crypto ecosystem continues to evolve, DEXs are poised to play an increasingly important role in shaping the future of France

Comment with your favorite DEX below. Otter may do a thread on the most liked DEX comment

Like & retweet please!

🦦

https://typefully.com/otteroooo/pSjRNnY

Decentralized Exchanges Outperform Centralized Ones

Binance has been trading against it's own customers, allege the CFTC

Here's why this is bad for you as trading users

like and retweet for more otter threads

🦦🧵👇🏻

A cryptocurrency exchange, like any financial institution, is expected to act as an intermediary between buyers and sellers, providing a fair and transparent marketplace for trading.

When an exchange engages in proprietary trading - trading on its own account - it creates a conflict of interest, as it has access to information that its users don't.

Proprietary trading can also create an unfair advantage for the exchange, as it can use its platform to execute trades more quickly and efficiently than its users.

This can lead to users being disadvantaged in the market, as the exchange is essentially competing against them.

When an exchange trades against its own users, it also undermines the integrity of the marketplace, as it is no longer acting as a neutral third party.

The exchange's profits become tied to the performance of its users, rather than the performance of the market as a whole.

This creates a perverse incentive for the exchange to manipulate the market in order to increase its own profits.

When an exchange engages in proprietary trading, it also creates a risk that the exchange could use its insider knowledge to trade against its users.

This is particularly concerning in the case of a cryptocurrency exchange, where market manipulation and insider trading are already major concerns.

In the case of Binance, the fact that the CEO directly or indirectly owned 300 accounts used for trading on the platform raises further questions about the exchange's practices.

Trading against its own users in this way undermines trust in the exchange, and can ultimately harm the entire cryptocurrency ecosystem.

Users may choose to take their business to other exchanges that are seen as more trustworthy, leading to a loss of market share for Binance.

It also risks attracting regulatory scrutiny, as regulators may see this behavior as unethical and potentially illegal.

For these reasons, it is generally considered unethical for an exchange to engage in proprietary trading against its own users.

Instead, exchanges should focus on providing a fair and transparent marketplace, free from conflicts of interest, in order to foster trust and promote the growth of the cryptocurrency ecosystem.

Want to learn more about the CFTF allegations? Check out otter's previous thread

https://twitter.com/otteroooo/status/1640529216830857216?s=46&t=TJqY7T601qP_XhXVAViauA


like and retweet!!

https://typefully.com/otteroooo/2DKWtCe

CFTC Alleges Binance Trading Against Its Customers

CZ just got charged by the Commodities Futures Trading Commission in the US

Here's what you need to know

🦦👇🏻🧵

The CFTC has charged Binance and its founder, Changpeng Zhao, with willful evasion of federal law and operating an illegal digital asset derivatives exchange

The Commodity Futures Trading Commission filed a civil enforcement action in the U.S. District Court for the Northern District of Illinois against CZ and three entities that operate the Binance platform.

The CFTC alleges that Binance chose to knowingly disregard applicable provisions of the Commodity Exchange Act while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit

The agency seeks disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations

CFTC Chairman Rostin Behnam says there is no location that will prevent the CFTC from protecting American investors.

Behnam says, "Binance knew they were violating CFTC rules...This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law."

Gretchen Lowe, CFTC’s Enforcement Division Principal Deputy Director and Chief Counsel, says the defendants' alleged willful evasion of U.S. law is at the core of the Commission’s complaint against Binance.

Lowe says, "Today’s enforcement action reflects that the CFTC and its Enforcement Division will pursue those digital asset platforms and individuals who flout and actively attempt to circumvent CFTC regulatory requirements."

According to the complaint, Binance has offered and executed commodity derivatives transactions to and for U.S. persons from July 2019 through the present.

Binance's compliance program has been ineffective and, at Zhao’s direction, Binance has instructed its employees and customers to circumvent compliance controls in order to maximize corporate profits.

The complaint charges that for much of the relevant period, Binance did not require its customers to provide any identity-verifying information before trading on the platform.

Even after Binance purported to restrict U.S. customers from trading on its platform, Binance instructed its customers – in particular its commercially valuable U.S.-based VIP customers – on the best methods for evading Binance’s compliance controls.

The complaint charges Binance with acting as a designated contract market or swap execution facility based on its role in facilitating derivatives transactions without registering with the CFTC, as required.

CZ is liable for Binance’s violations based on his control over Binance and his long-running failure to act in good faith concerning Binance’s misconduct.

Binance's former chief compliance officer, Samuel Lim, is charged with willfully aiding and abetting Binance’s violations through intentional conduct that undermined Binance’s compliance program.