Exchanges

Binance quietly removed some Wall Street jargon from its token’s white paper

Quick Take

  • Binance has edited its whitepaper’s outline of how it interacts with its token, BNB
  • The exchange says it did so to clarify it doesn’t actually repurchase BNB, but instead burns it
  • Discreet updates of this sort raise questions about other surreptitious revisions made retroactively

Unless you’ve had a very quiet week, you’re unlikely to have noticed a small yet significant change in Binance’s whitepaper.

As shown in the image below, the white paper was changed so as to remove the clause about the firm using 20% of its profits to buy back BNB. The left version shows the original description (highlighted in red), when it was first published in 2017. The right side shows the new version.

Changpeng “CZ” Zhao, Binance’s CEO, told The Block that the change was made as a matter of clarity:

“We recently updated our whitepaper to better describe how we actually conduct the burn. For example, we removed the buy back reference because we actually don’t repurchase BNB and simply reduce the supply by burning BNB. We also removed the profit language because some regions tend to associate profits with securities, and we would like to distance BNB from that. So going forward, we plan to describe the burn this way, and burn what we burn.”

A Binance spokesperson also confirmed to The Block that the amount of BNB burned is still 20% of profits.

But the fact the whitepaper was updated without due process is interesting in itself. Sources tell The Block the move was likely tied to the compliance headaches of using terms tied to the securities world. 

“My first impression is that this seems likely to be a proactive adjustment with then goal of compliance,” one crypto executive told The Block in a message. “I’d guess this is a proactive move toward better compliance with regulations.”

Dave Weisberger, CEO of CoinRoutes, noted, “It is very sad that the regulatory environment has triggered so much effort by firms to avoid the “securities” designation or to avoid the U.S. altogether.” He added, “It would be so much better for our regulators to agree on a principles-based regulatory framework for investor protection that could work WITH digital asset firms, rather than insisting the current U.S. securities laws “work well.”

However, if regulators are the reason behind Binance’s decision, the edit might not be enough to avoid further issues, according to Stephen Palley, a lawyer and regular contributor to The Block.

“Changing language in a whitepaper does not necessarily have an impact on a regulator’s analysis of whether or not something is a security.”

Moreover, simply burning tokens from the treasury does not offer token holders the same benefits as a stock buyback. “It’s the equivalent of issuing a gift card (which may or not may not be accepted) and destroying some portion of outstanding gift cards to claim the business is better,” The Block’s Arjun Balaji wrote earlier this year.

While Binance doesn’t disclose its financials, by knowing that the exchange still burns 20% of its quarterly profits it’s easy to deduce the approximate numbers. According to The Block’s estimate, Binance brought in a total of $78 million in profits in Q1 2019, up 66% quarter-on-quarter. So far, Binance has had seven quarterly BNB burns, in which it destroyed a little more than 11.6 million BNB. In total, Binance has brought in approximately $733 million in seven quarters of its short existence.

The original version (V1.1) of the whitepaper can be found here while the new version (V1.2) can be found on Binance’s website. All changes between V1.1 and V1.2 can be found here.