Binance’s story as told by Forbes — from ICO to a multi-billion-dollar business

Forbes conducted an investigation into the rise of the leading cryptocurrency exchange Binance — from a virtually failed ICO in 2017 to large reserves of digital assets.

Experts from Gray Wolf Analytics and Inca Digital contributed.

Journalists noted that the platform is currently facing an “existential crisis” due to lawsuits CFTC and SEC, layoffs and refusal by a number of payment companies to cooperate. In their view, the greatest difficulty lies in reduction in trading activity, which reduced BNB’s capitalization — a key element of its operating model — by 68% from ATH.

Failed ICO?

2017 was a boom year for token sales — in the first half of the year the market rose fivefold, and hundreds of digital assets appeared. After the idea to issue BNB was proposed by Binance management on June 17, and the white paper was published the next day, the process took just two weeks to complete.

Below is a screenshot of Binance’s site (accessible via the web archive) that reveals the token sale roadmap. That information is now removed.

Founder Changpeng Zhao (CZ) described the $15 million raised at 15 cents per BNB as a “huge success.” The funds went toward building the trading platform, and, to a greater extent, toward marketing.

According to the white paper, of the 200 million BNB issued, 100 million were allocated to the token sale, the remainder to insiders (80 million) and angel investors (20 million).

Binance pledged to buy back and burn half of the 200 million BNB. The asset’s price has reached $213, though at its peak it rose to $675, which made Zhao a billionaire with a net worth of $10 billion.

According to Forbes on-chain analysis, the above picture did not match reality. Instead of the claimed 100 million BNB, the exchange allocated only 10.78 million, with an additional 20 million passed to angel investors. As a result, the platform raised less than $5 million rather than the $15 million claimed, the publication asserts.

The problem is not unique to Binance. According to Financial Markets and Portfolio Management, from March 2016 to March 2018 across 306 ICOs:

•  45% of issuers retained unsold tokens;
• the rest either distributed them proportionally to investors, or permanently withdrew them from circulation.

Due to the absence of ICO registration, the real picture was not available to market participants.

Where did the undistributed BNB go?

The unsold 65 million BNB were then valued at less than $10 million; today — about $14 billion.

The exchange retains control over the assets, periodically moving them among 300 addresses (as noted in the CFTC’s suit against the company). The circumstance provided grounds for the SEC to accuse Binance of artificially inflating trading volumes on the platform. Company representatives called such claims “unfounded”.

According to Forbes, Binance controlled almost 117 million BNB, which as of August 31, 2023 accounts for 76% of the total supply. According to experts, the figure reflects, among other things, “secret wallets used to store customer funds and other corporate purposes”.

Journalists argue that BNB was a decisive factor in Binance’s emergence as a dominant platform for cryptocurrency trading. Maintaining a high price for the utility token was central to its success — just as FTX’s FTT was intended to underpin solvency.

According to information already removed from Binance’s site (accessible via the Wayback Machine), completing the $15 million ICO took less than three minutes rather than three weeks as the white paper anticipated.

On-chain analysis

Analysts say that after the issuance of 200 million BNB from the deployer wallet, they initially moved to an address controlled by the platform, and only then were distributed among ICO participants.

On-chain analysis showed that instead of the claimed 120 million BNB, the exchange transferred only 55 million BNB in 13 transactions from July 6 to August 14, 2017.

Experts described as possible but unlikely that the platform stored some of the tokens on its balance sheet on behalf of buyers. It is possible that Binance issued derivatives, but that is not standard practice and not verifiable, the journalists noted.

In Forbes, an analysis of the main wallets that initially received BNB was presented. Researchers estimate that the number of angels and retail investors during the first full month after the ICO’s closure was fewer than 2,000 addresses — 10% of the 20,000 registered on the exchange, according to CZ.

Analysts explained that there is significant duplication, transfers between wallets and mixing of funds among them, which makes the precise count of participants in each group difficult.

From the illustration below, it follows that from September 2017 to August 2018 there were no transfers from the deployer wallet. It is also possible to see about 65 million BNB that Binance sent from the deployer wallet to the address “Binance 5” in 2018, which apparently remained unsold during the ICO.

That wallet held 99.4 million BNB, accounting for half of the total supply. According to the white paper, the organization and its leaders were to own an additional 80 million tokens.

What do analysts say?

«Such discrepancies […] perplex. Stakeholders and the community are left to guess about the true nature of the ICO’s evolution, the reliability of reported trading volumes, and the adequacy of consumer-protection measures. These unresolved questions underscore the key role of blockchain technology in improving transparency and accountability in the crypto ecosystem, where trust is an absolute imperative», — Gray Wolf analysts.

According to Inca Digital’s CEO Adam Zarazinski, the spread of misleading information about the ICO’s actual results created overly optimistic expectations about the token’s future success, leaving Binance “with the ability to sustain an artificially high price for BNB”.

Forbes noted that the data Proof of Reserves do not include the platform’s corporate assets in BNB. Net customer funds in the coin total 30.3 million. They are backed by 34.5 million BNB, which “constitutes a modest over-collateralisation.”

In conclusion, the authors listed Binance’s entire wallet list with BNB:

On addresses allegedly linked to the platform, 63.1 million BNB (~$15.7 billion) were stored. Combined with assets on disclosed wallets, the figure amounts to 116.9 million BNB (~$27.3 billion).

In 2020, Binance filed a lawsuit against the publication for defamatory statements, but later withdrew it.

In February 2023 Forbes noted parallels with FTX’s maneuvers. Zhao called the article ‘another FUD article‘.

In January, CZ said that FTX paid an unnamed media outlet $43 million for a negative campaign against Binance.