Crypto exchange Binance started facing ever-growing regulatory scrutiny due to its so-called stock tokens — cryptocurrencies linked to stocks of various firms. So much so, in fact, that the exchange was forced to withdraw them from its platform effective today.
The largest and most controversial crypto exchange in the world
Binance has been the largest crypto exchange by trading volumes for years now, but despite its dominance in the crypto industry, the exchange has made mistakes in the past that have now returned to haunt it. The platform has been at the center of a number of controversies over the years.
At one time, its main platform offered services to US users even though the exchange offered coins and tokens that the SEC had proclaimed securities. It bought CoinMarketCap, which caused many to criticize it in fear that it will use it to boost its own status and downplay potential competitors.
It also claimed to be based in Malta, which Malta itself denied, claiming that the exchange had no paperwork issued by its regulators. And, there was also the controversy involving its listing of SushiSwap, which became controversial after SushiSwap’s founder abandoned the project, causing many to believe it to be an exit scam. This, of course, brought criticism to Binance as well, since the exchange saw a popular token and it immediately listed it, supposedly without doing background checks and thinking twice about it.
Over the last several months, however, the exchange has been facing another major issue, this time with regulators in countries around the world due to its offering of tokenized stocks.
Stock tokens caused growing regulatory scrutiny
Binance has been offering tokenized stocks for a while now, but the trend of tokenizing them became big earlier this year, during the GameStop short squeeze. For those who might not remember — a group of institutional investors shorted the stocks of a company called GameStop (among others), and in doing so, it caused the stock price to drop. Essentially, they were making money and destroying the firm simultaneously.
This caused a group of retail investors from Reddit to start a mass purchase of GameStop’s stocks, thus pushing their price up. This was very damaging to institutions, and a number of centralized stock platforms withdrew GameStop stocks, making investors unable to buy them. The crypto industry reacted with several platforms tokenizing these stocks and allowing investors to buy them by purchasing tokens. This was what attracted the attention to the act of tokenizing stocks, and regulators from all over the world started looking into the idea, and its legitimacy.
With Binance being among the exchanges that offered various tokenized stocks, the regulators quickly pointed out that Binance doesn’t have licenses to offer such regulated services in their countries. This led banks like Britain’s multinational bank, Barclays, to halt all transactions to and from the exchange, which, in turn, caused anger amongst its customers.
Regulators from other countries, like Japan and Germany, also published warnings against the exchange due to tokenized stocks, and while Binance tried to defend its position for a while, the exchange eventually admitted its mistake, pointing out that it developed quickly, and that, in that speed, it made mistakes. It also noted that it will expand its compliance team to seek out any other potential issues.
As for its tokenized stocks, it has just announced its decision to remove them.
Italy joins the crackdown causing Binance to remove stock tokens
According to Binance’s announcement published earlier today, July 16th, 2021, the exchange’s users will no longer be able to buy digital tokens linked to stocks. The decision came only a day after Italian regulators decided to join the growing group of those who were cracking down on the platform due to this product.
Binance announced that, effective immediately, stock tokens will no longer be available for purchase on its platform, and that no stock tokens will be available after October 14th of this year. It further said that it plans to shift its focus on other offerings of its platform.
As mentioned, Italian regulators joined others who were issuing warnings against the platform only yesterday. They said that Binance did not have proper authorization to offer investment services and activities in Italy. This included even its main website, which does offer information in Italian regarding stock tokens and derivatives.
With this, Binance seems to have finally admitted defeat on the matter, as the issue was getting more and more attention, and the exchange was forced to cut its losses and move on from this product.