Concerns over Binance Algo holdings getting too Big?!

It seems the number of Algos in Binance wallets is easily above 300M, maybe over 500M or even more. These are of course not all owned by Binance itself however these algos are under the Binance control. Given how much power exchanges and in particular Binance have in moving the market, liquidations and acquiring Algos cheap (which unfortunately are sold aggressively by the foundation, inc., insiders, original investors at any price like there is no tomorrow; people who bought with their actual money don’t sell at these prices), it wouldn’t be surprising to see over 1B algos in Binance wallets soon. This is concerning because of

  • The centralization risk
  • The conflict of interest as Binance owns and heavily invests in BNB/BSC as a major competitor.

If others in the community also see this as a major concern, it might be worth escalating it to the foundation so they can come up with some measures that reduce the risk.

On Reddit

3 Likes

This is a trend I have been seeing in crypto recently, with all the other exchanges somewhat struggling, while Binance seems to be in contrast (at least not publicly) in not too much trouble. But at the current point I do not see it as too concerning, or I even wonder what the Foundation could do about it tbh. Risking anything concerning Binance, would impact Algo even worse.

As discussed under the reddit post, one thing that the foundation and inc. could do is using a more transparent selling approach so large entities do not have a major advantage on regular investors. Here are some key points:

  • The only major sellers at these prices are foundation/inc., not people who bought Algos with their actual money (likely at much higher prices).
  • If there is no fixed lower limit for the sell price by foundation/inc. the price can be pushed lower and lower by sophisticated market manipulators (that controlling the overall crypto market and its future is their goal). Yes, there is a global negative macro environment but Algorand is attracting (much) more capital comparing to many other top chains relative to its size. However, this incoming capital impact is not reflected in the price action.
  • The concern is not the price action but losing investors’ confidence, attention and resource allocation and therefore delaying the Algorand adoption growth.
  • Instead of selling millions in a few days and through third parties with a very high risk of insider trading at different levels (which is a matter of credibility too), Algos can be sold regularly (daily or on predefined dates), ideally on the Algorand DeFi, e.g., algodex.
1 Like

Given the recent Binance/FTX developments and the potential of an exchange monopoly, this is even more concerning! Something to think about.

What do you think would happen if Algorand, Inc. were bought by FTX or Binance? Or, by a bank for that matter? Given, Binance owns so much Algo, why wouldn’t they just buyout Algorand, Inc. and take total control of the network?

With the current shift in the market, it would seem like a bank, such as JP Morgan or BNY Mellon would probably want to acquire Algorand, Inc. For example, BNY Mellon custodies Bitcoin owned by the U.S. government. They would presumably benefit by saving money on transaction fees by using Algorand to move it, especially since the DOJ just seized another $3.3B in Bitcoin. It creates an interesting situation, since the equity control and IP ownership have more present value than the Algo asset itself.

The specific concern in this post is that Binance can block or slow down the Algorand growth if it has a significant number of Algos, by controlling the market and price action, or through the governance. As the single major exchange even without a large number of Algos it can isolate a coin or limits particular service if it feels that that coin is a competitor or threat to any of its business services or products. This is not a theoretical concern; Binance has shown again and again in the past that it does anything necessary to keep and strengthen its unique position in the crypto world.

Re your question about Binance buying Algorand inc., if the Binance interest becomes 100% aligned with the network long-term success, sure, that alleviates the concern, however there are two issues: 1. The long-term relationship between Algorand inc. as the main product owner/driver and the network is unclear (I complained about the lack of clarity here, which is a fundamental issue, in several posts, but unfortunately it doesn’t seem anyone hears them). 2. Binance can still decide to kill the network or limit its growth as that is not in its best interest, for example DeFi or DEX adversely impacts its profit.

2 Likes

Great points. I appreciate your insights here and your concerns are valid. Binance’s acquisition of FTX is shocking.

Perhaps more interestingly is the cause seems to be a liquidity shortage. One thing to keep in mind about low liquidity is that it yields high volatility - up and down. The general message from the press seems to be negative, but perhaps this consolidation is a good thing for the market. There is still more money in the economy today than there was last year and eventually it has to make it’s way back to markets. This is why I think blockchain acquisitions may be very tempting for banks, but Big Tech may also be a potential acquirer because they have large cash reserves.

I’m very curious to see what happens over the next couple months. There is inherent value in the underlying blockchain technology.

1 Like

you must have missed structured selling in the transparency reports

1 Like

I’ve read and it was part of past transparency reports too.
There are two key token sellers: the foundation and inc. and both mention following some rules in their transparency reports:

A few points:

  • The rules are somewhat vague. For example, what is the fixed threshold and medium term. Who are third parties? What are the exact schedules (if they are predefined)?
  • It is unclear how implementing these exact rules is supposed to be verified. In fact the token sales pattern by both orgs doesn’t satisfy the rules or at least a rational distribution. For example see a recent sell event where 5-10M algos sold in 24H through a single (!!) exchange (Algorand Account)!
  • How is the insider knowledge trading by the org/third-party prevented? This is a real concern!
  • Even if all these rules are carefully applied they are still insufficient to prevent market manipulators from pushing the price lower and lower. This happens in the stock market too, however in the stock market the market maker can short almost as much as they want (for example, in the gamestop case where they shorted 140% of shares). Here, we know that the majority of Algo holders do not sell (for example from algos locked in the governance). So, how do they cover their short positions, push the price lower (and in some cases even accumulate more)? With tens of millions Algos coming from orgs to the market. For example the current largest algo account (Algorand Account) withdrawal/deposits timing match the price action. I don’t know who owns this particular account and whether it actually belongs to a market maker/manipulator but there are a couple other accounts with a similar pattern. The point is that the Algo price action, and therefore the narrative, is controlled by the big crypto players.
  • I think at this stage, even given the terrible macro environment, there is enough demand for Algo tokens for all Algos need to be sold by both orgs. Therefore a more transparent approach like regularly selling a specific amount of Algos in CEX/DeFi works much better. This approach can be at least tried in a small size and if successful then scaled.
2 Likes

I think the appropriate response is to disallow any exchange, Algorand Inc., or Algorand Foundation from voting in Governance.

1 Like

Logical, but highly unlikely.