Binance temporarily halted withdrawals of stablecoin USDC as investor concerns mount after FTX collapse

Binance, the world’s largest cryptocurrency exchange, has paused stablecoin withdrawals USDC on Tuesday while conducting a “symbol exchange.”

USDC withdrawals resumed around 8 hours after Binance first announced the withdrawal pause.

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The move comes as investor concerns grow about the stability of Binance following the collapse of rival exchange FTX, as well as a report of a potential criminal investigation by the US government.

Binance said earlier on Tuesday that it has “temporarily paused” USDC withdrawals while it conducts a “token swap”. This involves exchanging one cryptocurrency for another without the need for fiat currency.

Changpeng Zhao, CEO of Binance, tweeted that the exchange had seen an increase in withdrawals of USDC, a cryptocurrency known as a stablecoin because it is pegged one-to-one with American dollar.

USDC is used by investors to trade in and out of various cryptocurrencies without the need to transfer money back to US dollars. If traders are withdrawing USDC from Binance, it may be moving it to another platform.

Zhao said all USDC transfers from the stablecoin known as PAX, as well as Binance’s own token BUSD, require routing through a New York-based bank that has not yet been opened. Zhao’s suggestion is that users want to convert their PAX and BUSD to USDC to withdraw their funds from Binance.

The token swap could be a way for Binance to get more USDC quickly while banks are closed to resume customer withdrawals.

Zhao said users can still withdraw other stablecoins, including BUSD and tether. Deposits are not affected, he said.

Binance’s own token called BNB was trading down about 5% on Tuesday morning, according to data from CoinGecko.

It’s usually not good news when a crypto firm has to pause withdrawals. Over the summer, crypto firms, including lender Celsius, had to suspend withdrawals before eventually filing for bankruptcy. There are no indications of such problems for Binance.

In the past 24 hours, Binance has seen $1.6 billion in outflows from its platform, according to a tweet from crypto data company Nansen published early Tuesday. Binance has more than $60 billion in assets on its platform, Nansen said.

The collapse of FTX and the arrest of its former CEO Sam Bankman-Fried has crypto investors on edge with fears of further contagion in the industry.

Binance has been in the spotlight since its decision to sell its stake in its self-issued FTT digital tokens to FTX, which preceded the failure of its rival exchange.

Investors have called for more transparency from Binance’s business. Last month, the company issued a proof of reserve, claiming a reserve ratio of 101%. This means it has enough assets to cover customer deposits.

But critics said the proof of reserves didn’t go far enough to warrant Binance’s collateral. Mazars, the auditing firm Binance used for its proof of reserves, said in its five-page report that the company “does not express an opinion or an assurance conclusion.”

Investors are also following a report from Reuters that US Justice Department prosecutors are delaying the conclusion of a criminal investigation into Binance. Reuters, citing four people familiar with the matter, said the investigation focused on Binance’s compliance with anti-money laundering laws. Binance responded, saying, “Reuters is wrong again.”

“We have no insight into the inner workings of the US Department of Justice, nor would it be appropriate to comment if we did,” the company said in a tweet on Monday.