Crypto saviors? Are Binance and CZ coming to crypto's rescue?
Theyre doing this in two major ways. At the moment, the first one is the Industry Recovery initiative, which involves several investors grouping together to potentially support ailing and struggling players in the industry, potentially buying them out or investing them through other investment means. The second one is by encouraging proof of Reserves at exchanges, while discouraging exchanges from taking on excess liabilities other than with respect to their depositors, so lets go through each of these and see whether theyre actually going to make a genuine difference. So if we look at the Industry Recovery initiative, this is basically a billion dollar pot of money. At the moment, the aim is to try to support struggling cryptocurrency players, potentially bailing them out potentially buying them up potentially investing in other means. This might involve a debt type instrument or more likely involve Equity. I say more likely Equity because CZ doesnt seem very keen on exchanges and other players having a lot of debt themselves now, at the moment, its a billion dollars, but it might expand to two billion dollars. The major investor in it at the moment is binance. However, theyre encouraged other investors to get on board and at the moment, theyve got tens of millions of dollars of additional commitments. Now, in terms of how this fund works, like Ive, said its got about a billion dollars at the moment, but its expanding a little bit now, they will consider each individual investment opportunity on a case by case basis.
So this pot of money is not an investment vehicle. Each participant considers each investment on its own merits and makes an investment decision by themselves. The purpose of the Industry Recovery initiative is to basically show proof of commitment to be able to invest in these companies. That is, is to try to show a sign of confidence to the General Public. It isnt that this fund goes out and invests really. Nearly this fund doesnt seem like its going to go out and invest in random companies. Not every firm that is failing is going to get support; rather it appears the iri. The Industry Recovery initiative will consider each investment opportunity on a case by case basis, so there would need to be a genuine business case for supporting the firms that would be coming to the iri. All of the participants are looking at whether they can turn around some of these ailing parties that are being supported. Another major plus here is this builds confidence within the crypto industry. It suggests that our players, who are really ready and willing to support quality companies that are suffering through no fault of their own, those companies, might involve those with significant exposure to FTX. For example, several other players have paused withdrawals due to the FTX contagion. An example would be digital surge, but other players as well have been affected. Some of these include block thigh, weve, seen Voyager, also be affected. Weve seen Genesis and Gemini as well now in the case of Voyager Voyager, was going to be supported by FTX, but now that FTX has failed, it will no longer be able to do so.
Reportedly binance.us has expressed interest in buying art Voyager, as have several other parties, so that might become a competitive process to buy out the company. Now this leads me onto some of the pluses and minuses. The major plus, like I indicated, is that it creates support and confidence within the industry, and this therefore might get some Regulators off the back of some of these crypto players. The major negative, of course. This might reduce competition to go out and buy some of these exchanges, for example, say youve got an alien exchange. It might otherwise if it has good quality assets, but otherwise get the support and attention from several potential acquirers. However, when youve got the iri dominating and many players going into the IRA, you might only have one acquirer, that is, you might have a Consortium of people piling together to buy out that ailing firm. This therefore reduces the number of bidders for that Target and therefore might reduce the price that the original shuttles got for their assets. That, therefore, can be a little bit of a disadvantage for the shareholders that are selling one thing to bear in mind, though, is that if those shareholders are choosing between being bought out or invested in versus going bankrupt, then maybe this is better than my than the Alternative might have been so the iri is likely a step in the right direction. The second major initiative is proof of reserves, and a particular binance is heavily encouraging exchanges to have proof of reserves.
Finance themselves have done this with Bitcoin at the moment. What theyve, basically done is theyve shown traceable proof of their Bitcoin reserves, theyve shown that they hold basically Bitcoin assets, one for one with their customer deposits. At the time of recording the reserves were about 101 of their deposits, suggesting a little bit of a buffer. That now right now, theyve only done this for Bitcoin. However theyve indicated theyll do it for other tokens. Presumably Bitcoin is the largest of the deposits within binance, given that is one of the more popular cryptocurrencies, particularly with people who are not very familiar with the crypto space. However, one would hope that this rolls out to other tokens like ethereum, potentially even some of the popular meme coins such as Doge or Shiba or whatever so the proof of reserves is good. Cz has particularly been very active in promoting proof of reserves as important and proof of reserves as a way of building confidence within the crypto space. After all, one of the major problems that FTX had was it didnt seem to have reserves. It seemed to take the Assets in from customers, then potentially lend them out to other random parties or potentially hypothecate them or maybe not store them in the original value they were held so say. For example, someone took Bitcoin and deposited it into their FTX wallet its, not entirely clear what f TX did with it. Did they lend out that Bitcoin to Alameda? Did they collateralize that Bitcoin, so, for example, borrow against it? Did they transform it into some other asset? Be it theater or a different token, those are clear questions.
Consumers would have about what was going on with FTX binance. The solution, then, is the show that for every Bitcoin the people have deposited into binance or bought through binance. They have a Bitcoin on their balance sheet and similarly for the other tokens, or at least presumably in the future, this would help to mitigate one of the key problems with FTX, which is that they didnt seem to have Reserve assets. However, there are some things to bear in mind. The first one is that the reserves are only as good as your liability position, for example, say were looking at FTX. If FTX were to go out and get Bitcoin from its customers and then it went out and borrowed a ton of money, then it wont necessarily be in a solvent position. You need to know how much liabilities that crypto exchange or that crypto party has now CZ has asserted that binance does not have liabilities. Hes asserted, therefore, that the reserves are being stored, one for one and there is not going to be a claim over them. That might otherwise jeopardize customers assets. That may or may not be the case. We dont actually have proof of that at the moment, but itll take him at his word. However, other exchanges, arent necessarily in that position and greater transparency and information about that, would help significantly and make improve of reserves more useful. The second thing is, we need to know the precise form of those reserves now Binet seems to be taking steps in the right direction.
Here I is showing that if a customer has Bitcoin in their own wallet, the binance has a Bitcoin in its Reserve assets. However, other less scrupulous exchanges might say: well, customers have, for example, ten thousand dollars worth of bitcoin and weve got ten thousand dollars worth of Reserves. But the question then becomes: what form are those reserves in? Are they in Bitcoin, like the customers original token, or are they in something else? For example, is it in Fiat? Is it in a different token? Is it a token of their own, for example, with FTX? It is reported that Alameda had used the ftt token as collateral, which resulted in terrible results because of the FDT token fell, the collateral value fell and then everyone ended up with well an insolvency problem. So this is a step in the right direction, but it really is only as good as the additional information and the trustworthiness of the exchange providing the proof of reserves and the quality of the information being provided. Now, if youve got any thoughts about what CZ is doing here about what binance is doing and about whether it is going to be effective or in any way useful, let me know that in the comments below, and otherwise thanks a lot for tuning in if the Video has been useful or interesting to you.