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Another day, another major lawsuit hits Binance in the US, Tether is accused of sneaking into the US banking system and collapsed hedge fund Three Arrows Capital launches a bankruptcy claims exchange.
A new class action lawsuit has been filed by three investors -— two Floridians and one Californian — who claim they lost money after trading crypto-assets promoted by Binance and online influencers.
Binance, founder and CEO Changpeng Zhao and three influencers are accused of offering, selling and promoting unregistered securities, with the plaintiffs seeking $1bn in damages.
The influencers include NBA Miami Heat star Jimmy Butler and YouTubers Graham Stephan and Ben Armstrong, better known as BitBoy Crypto.
The 74-page lawsuit was filed at a Florida district court by Moskowitz Law Firm, the same law firm that is currently leading class actions on behalf of customers who lost money in the FTX and Voyager bankruptcies.
Throughout its complaint against Biannce, Moskowitz continually highlights the power of Binance’s "Brand Ambassadors" and the "Binance Affiliate Program", which it claims is crucial to Binance’s success.
The Binance Affiliate Program is open to any social media “influencer” who has 5,000 followers or more, or any leader of a crypto “trading community” that has 500 members or more.
Influencers and community leaders who meet these criteria who successfully apply to become affiliates will receive so-called “affiliate links” from Binance.
These links are then used by new customers when signing up to Binance, and this establishes a rewards distribution system between the new customer and the affiliate.
At first, every time the new customer executes a trade on Binance, the affiliate pockets 41 percent of the trading fees. After the affiliate signs up 500 new customers, the affiliate’s commission is raised to 50 percent.
To maintain the flow of rewards, the affiliate must continue to recruit at least ten new customers every 90 days, who collectively trade at least 50 BTC (about $1.4m) in volume on the exchange.
According to the lawsuit, Binance’s success, both in the US and globally, is due in large part to the incentives offered by the Affiliate Program.
“Influencers played a major role in the rise of Binance,” the lawsuit states, “and in fact, Binance could not have arisen to such great heights without the massive impact of these influencers, who hyped these unregistered securities for payments of multi-million dollars.”
As an NBA player, Jimmy Butler was nationally recognised in the US before he became a Binance affiliate. He currently has 8m followers on Instagram, 900,000 on Twitter and 730,000 on YouTube.
Although unknown to the general public prior to the crypto boom of 2021-22, Graham Stephan and Ben Armstrong both rose to prominence on YouTube, with 4.1m and 1.5m subscribers respectively.
The complaint is the second major lawsuit filed against Binance in two weeks, following a complaint filed by the Commodities Futures Trading Commission, which is seeking a permanent ban on Binance from the US market.
Tether’s access to US banking system probed
The issuer of the world’s largest stablecoin is facing accusations that it has accessed the US banking system through a “back door” offered by Signet, the private blockchain of Signature Bank.
According to anonymous sources, Tether has instructed its crypto clients to pay for stablecoins by sending US dollars to Capital Union Bank, its Bahamas-based banking partner, via the Signet payments platform.
As reported by Bloomberg, it is unclear how long this arrangement was in place, but the sources said it was still in place when Signature Bank collapsed last month.
The allegations are significant in light of the fact that Signature Bank is headquartered and state-chartered in New York, but Tether has been banned from doing business with New Yorkers since 2021.
New York’s Tether ban was the result of an investigation that began in 2017 and saw Tether accused of lying about its reserves.
Ultimately, Tether neither admitted to or was convicted of any wrongdoing, but it agreed to settle with the New York Attorney General on the condition that it would cease trading in New York and pay $18.5m in penalties.
Last month, following the collapse of Silicon Valley Bank (SVB), the New York State Department of Financial Services took control of Signature Bank to prevent a similar bank run.
Signature Bank was then transferred to the Federal Deposit Insurance Corporation, where it entered receivership.
Trade your bankruptcy claims at OPNX
Finally, the co-founders of collapsed crypto hedge fund Three Arrows Capital (3AC) have re-emerged as backers of a new exchange for crypto bankruptcy claims.
OPNX, which went live this week, said it aims to help the “millions” of customers affected by crypto bankruptcies to make use of their frozen funds. In an official statement, OPNX said these funds could be worth as much as $20bn.
“Crypto promised us a world of financial sovereignty and transparency, but we ended up with a black box of obscured risk, leverage and non-custody,” said OPNX.
“Chains, CEXs [centralised exchanges], massive projects and funds collapsed last year. Few were left unscathed, and crypto adoption suffered tremendous setbacks. The team at OPNX understands this firsthand.”
OPNX said it is aiming to serve customers whose funds remain tied up in companies such as FTX, Voyager, Celsius, Genesis, BlockFi and Mt Gox.
“Open Exchange is a solution and home for those harmed by crypto crises, allowing claimants to immediately unleash their locked claims directly into crypto or use them as margin capital,” the company added.
What OPNX does not emphasise in its marketing material is that 3AC, one of its main creditors, owes money to many of the companies whose former customers OPNX is now targeting, including Digital Currency Group (DCG) Voyager, Celsius, Genesis and BlockFi.
In July last year, according to court documents filed in Singapore, 3AC owed a total of 27 companies $3.2bn. This was revealed as part of 3AC’s liquidation — a process that is still ongoing.
At present, bankruptcy claims trading has yet to go live on OPNX, but in the meantime users can trade spot crypto or crypto futures.
In January this year, as reported by VIXIO, former 3AC co-founders Su Zhu and Kyle Davies were discovered to be working on a bankruptcy claims exchange following the leak of a slide deck aimed at potential investors.
At the time, the exchange described in the slide deck went by the name GTX. In the slide deck section titled "Founding Team", Zhu and Davies were described as the 3AC co-founders who turned $1.2m into $4bn before 3AC “went bust” in 2022.
