Binance CEO disowns smart chain scams

Binance chief executive, Changpeng Zhao, has denied responsibility for scams conducted across his exchange’s decentralised finance (DeFi) platform, Binance Smart Chain.

In a blog published on 4 November, Zhao said that cryptocurrency speculators were on their own if “rug pulled” on the Binance Smart Chain platform.

A rug pull is a common scam in the cryptocurrency markets, where the anonymous developers behind a crypto project quickly make off with users’ funds.

Zhao’s warning comes a few days after a prominent exit scam involving a token called Squid, notionally related to the popular Netflix series, Squid Game.

BBC taken in

The Squid scam appears to have fooled several mainstream news outlets.

For example, the BBC reported a week ago that “If you’re a fan wanting to express your devotion to the hit Korean Netflix show Squid Game—well, there’s a cryptocurrency for that”.

Four days later the BBC said that the Squid token’s price had collapsed and that the whole scheme had apparently been a deception.

DeFi risk warning

“Because these scams are becoming more commonplace as the DeFi space grows, I’d like to take this opportunity to remind users that DeFi is not without its risks, and we hate to see anyone lose their funds due to scams and other cybercrimes. on Binance Smart Chain,” Zhao said yesterday.

Binance Smart Chain was launched in September 2020 to enable the creation of smart contracts (automated financial programmes).

It was set up as a competitor to the main smart contract blockchain, ethereum, which has suffered from repeated congestion and high transaction fees.

Since its launch, Binance Smart Chain has regularly seen more DeFi activity than ethereum.

Binance Smart Chain uses Binance’s native token, Binance Coin (BNB), for the ‘staking’ inherent to smart contract blockchains.

In the recent Squid rug pull, the scammers transferred the value of the Squid tokens into BNB tokens, which they then cashed in, using a so-called tumbling (mixing) service to cover their tracks.

It’s not our fault

According to Binance’s CEO, his exchange cannot take responsibility for scams conducted across its smart chain because it does not control token issuance there.

“We don’t have any control or influence over projects that are built on the network”

“Some may ask, why can’t Binance do something about DeFi projects like Squid?” Zhao wrote in his 4 November blog.

“I think it’s important here to explain that blockchains like Binance Smart Chain (BSC) and Ethereum are open source. We don’t have any control or influence over projects that are built on the network,” Zhao said.

“Because BSC is entirely community driven, governance-related decisions would need to be coordinated by the community. The same is true for any other open source blockchain, like ethereum for example.”

Binance controls smart chain validation

Others dispute that Binance Smart Chain is as decentralised as ethereum and point out its links to the parent cryptocurrency exchange.

In April, Wilson Withiam, a researcher with Messari crypto, tweeted:

“Some might overlook the influence Binance Chain has over Binance Smart Chain’s validator set. BSC has 21 active validators, making it more centralized than most platforms. This validator set is determined daily by Binance Chain, a network managed by just 11 validators.”

Although this week’s Squid scam received high-profile press coverage, it’s only the latest in a long series of rug pulls associated with the Binance Smart Chain platform.

In April, a commentor on Reddit said 46 DeFi projects on the Binance Smart Chain had exit scammed in the previous month alone.

We will cooperate

In response to the Squid rug pull, Binance’s CEO said his exchange was seeking to cooperate with investigations.

“Our security team proactively launched an investigation as a way to show our support for the wider crypto community,” Zhao said.

“I can confirm we are taking the following actions: working to identify and blacklist address affiliated with the developers, deploying blockchain analytics to identify the bad actors and providing our findings to law enforcement in the appropriate jurisdictions.”

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