“According to our policy, it is not our policy to compensate customers for our technical problems,” says Binance.
As soon as the Canadian cryptocurrency trader saw the price of Ethereum fall, he realized that it was time to liquidate the assets he had in his possession.
However, unfortunately for him, this was not possible.
Ahmed was investing in Binance, the world’s largest exchange based on its trading volume.
Nevertheless, on May 19, he tried for about an hour but could not “close” his seats.
On that day, both Bitcoin and Ethereum recorded their biggest drop since March 2020, with the cryptocurrency market falling below $ 1 trillion in terms of its capitalization.
As a result, Ahmed’s funds vanished.
According to him, the losses he had reached reached 6 million dollars.
Binance gave him some vague claims of compensation, however, “according to our policy, it is not our policy to compensate customers who lose money due to technical problems, as we do not cover hypothetical and unsecured profits.”
Losses due to… leverage and without headquarters
If nothing else, Binance sometimes has problems, especially in times of volatility for cryptocurrencies.
This can cause irreparable damage to traders’ funds – especially when prices are falling.
And these losses can reach millions of dollars when investors make risky bets using leverage.
Binance recently reduced the maximum leverage that its customers can leverage in futures contracts-financial derivatives.
Meanwhile, Changpeng “CZ” Zhao, Binance’s boss, has repeatedly stated that the exchange has no official headquarters.
This makes it extremely difficult for users to take the company to court.
A group of traders hopes this will change.
With the help of Liti Capital, a little-known private equity firm that provides litigation financing, nearly 1,000 people are expected to take part in arbitration proceedings in Hong Kong to seek redress from Binance.
“This is a milestone for the industry,” David Kay, chief investment officer at Liti Capital, told CNBC.
“They have no house, no headquarters, no office”.
“The only place Binance can be held accountable is in an international arbitration tribunal in Hong Kong.”
It is noted that the terms of use of Binance say that any legal dispute can be resolved through arbitration at the International Arbitration Center in Hong Kong.
Arbitration proceedings, unlike prosecution lawsuits, are aimed at resolving out-of-court disputes.
This makes it even more difficult for the average consumer to claim compensation, as applicants have to pay fees and additional costs – for example, travel to Hong Kong.
Individually, this could return about $ 65,000 to each applicant.
To cover these costs, Liti Capital has promised to fund the complainants with at least $ 5 million.
Encryption suppression
While some companies in the field, such as Coinbase, have sought to engage with regulators, Binance and many others operate outside the scope of established rules.
This has not gone unnoticed by regulators.
Two major concerns about cryptocurrencies are the lack of protection for consumers and the risk of money laundering and other illegal activities.
In this context, Binance, which was founded by Zhao in China four years ago, recently stated that it is seeking to become a regulated institution, with plans to obtain licenses in several jurisdictions and to set up regional headquarters.
In fact, Zhao appears willing to hand over the baton to someone more experienced.
