Forbes report: Binance transferred $1.8B of stablecoin collateral to hedge funds

Last year, Binance, one of the world's largest cryptocurrency exchanges, reportedly transferred $1.8 billion of collateral intended to back its customers' stablecoins to hedge funds without informing them, according to Forbes. The move meant that over $1 billion worth of tokens called B-peg USDC, which are digital replicas of dollar-pegged stablecoin USDC, were uncollateralized despite Binance's claim that they were fully backed. The collateral was reportedly transferred to hedge funds including Alameda and Cumberland/DRW, and Forbes noted that Binance's customers were not informed of the move.

The transfer of funds between wallets is a common practice, according to Binance's chief strategy officer, Patrick Hillman. In a statement to CoinDesk, a Binance spokesperson said that the exchange has "never invested or otherwise deployed user assets without consent under the terms of specific products" and that the transactions identified by Forbes were related to internal wallet management and did not affect the collateralization of user assets.

However, Binance has previously acknowledged that its wallet management processes for Binance-pegged token collateral have not always been flawless. At least one major stablecoin, Binance-peg BUSD, was not always fully backed, and reserves were mixed with customer funds. To address these issues, Binance recently announced that it is moving to a semi-automated process for managing the reserves of tokens it issues.

Overall, the transfer of collateral to hedge funds without informing customers raises questions about Binance's transparency and its commitment to fully backing stablecoins. While Binance has said that the move was a common practice, it underscores the need for clear communication and transparency in the cryptocurrency industry.