Binance was once FTX's rival and possible savior. Now it's trying not to be its sequel

Fallout from the catastrophic collapse of the cryptocurrency exchange FTX continues to spread, and fear and panic has now turned to FTX's one-time rival, Binance.

In the latest blow, international accounting firm Mazars abruptly stopped verifying Binance's "proof of reserves," a report intended to show the company has enough money on hand to back up customer deposits. Mazars, known for cutting ties with former President Donald Trump earlier this year, suspended its work for all crypto companies on Friday, according to Binance.

Rushing to find a replacement, Binance has already reached out multiple auditors, including the "Big Four" accounting firms, only to be told "no," the spokesperson said.

So, for now, it must release its reports without a stamp of credibility from a reputable, outside company.

A crisis of confidence has already hurt the company. Its customers were spooked earlier in the week about the safety of their money, after the arrest of FTX's founder Sam Bankman-Fried and the publication of a report about government scrutiny of Binance.

From Monday through Wednesday, $6 billion washed out of the exchange, according to Binance. Approximately $1.14 billion was withdrawn on Tuesday alone.

The company's CEO, Changpeng Zhao, who is better known as "CZ," dismissed the outrush of cash as "business as usual" for the world's largest crypto exchange, writing on Twitter "we have seen this before."

The company offered reassurances in a statement that the withdrawals were "managed with ease."

There were also signs, though, of unease, when Binance halted withdrawals of a so-called "stable coin" called USDC, for about eight hours on Tuesday.

It reminded crypto investors of the run-up to FTX's implosion just a month earlier. FTX had to halt withdrawals when customers panicked over questions about its solvency. Ultimately, the company filed for bankruptcy, revealing it did indeed have money problems and at least $8 billion of customers' money had disappeared.

According to CZ, Binance's situation on Tuesday wasn't comparable, and he blamed it on a bank being closed.

But in a memo to employees, obtained by NPR, CZ also indicated that Tuesday was not a one-off, with the industry where he also reigns as a celebrity and influencer going through an "historic moment."

"While we expect the next several months to be bumpy, we will get past this challenging period," he wrote. "And we'll be stronger for having been through it."

He told Binance employees that "this organization was built to last" and "will survive any crypto winter."

The cat's cradle of crypto

FTX's swift downfall, from being a $32 billion behemoth to bankruptcy, though, has many wondering what parts of the market will survive. The taint from Bankman-Fried's arrest has spread beyond the market, too, with the Democratic National Committee announcing on Friday it will return more than $800,000 of his political contributions.

Although investigators are still piecing together what happened, the collapse has laid bare how closely connected many of the biggest players in crypto are.

A little more than two weeks after FTX fell, crypto lender BlockFi filed for bankruptcy, after halting withdrawals and asking customers not to make deposits. It was one of a handful of companies that FTX had bailed out as the "crypto winter" began setting in a few months ago.

As the Federal Reserve has raised interest rates to fight high inflation, investors have lost their appetite for risk and for almost anything tech. The values of cryptocurrencies are falling, with Bitcoin's down more than 60% this year.

Another part of the crypto tangle is Genesis, which is facing the possibility of bankruptcy. It said in a tweet last month its derivatives business had about $175 million locked in an FTX account.

One of its units was named on Thursday to a creditors committee in the FTX bankruptcy case by the Department of Justice's U.S. Trustee, giving it power in shaping how FTX will pay off its debts.

The market's current shakiness has put the government on alert.

The Federal Reserve, though, does not believe it poses a threat to the broader economy or banking system. After a special meeting with the staff of the Federal Reserve Bank of New York, major U.S. financial regulators, including the Treasury Secretary, concluded "that spillovers to the traditional financial system have remained limited," according to a readout from the meeting.

Binance seeks to set itself apart from FTX

Binance, meanwhile, was at the center of FTX's implosion. In November, after a report raised questions about FTX's finances, and its cozy relationship with Alameda Research, the private hedge fund founded by Sam Bankman-Fried, CZ decided to dump his holdings of a cryptocurrency FTX minted, called FTT.

That led to what was essentially a bank run, and with FTX's future very much in doubt, Binance signed a non-binding letter of intent to acquire FTX.

Hours later, CZ reneged on that offer, all but ensuring FTX's dissolution.

Since then, Binance has gone to great pains to stress it is financially sound.

The company hired Mazars to review its numbers and, like its peers such as Crypto.com, used the proofs of reserve to indicate it enough reserves on hand to back up customer deposits.

Mazars decided to stop supporting those proofs for any crypto company, at least temporarily, because the public doesn't understand that the reports are very limited, it said in a statement on Friday.

"They do not constitute either an assurance or an audit opinion," Mazars said in a statement. "Instead they report limited findings based on the agreed procedures performed on the subject matter at a historical point in time."

Binance is also being investigated by the Department of Justice, and Reuters recently reported prosecutors are "delaying the conclusion" of that investigation.

"As has been reportedly widely, regulators are doing a seeping review of every crypto company," a Binance spokesperson told NPR, in an e-mail. "This nascent industry has grown quickly and Binance has shown its commitment to security and compliance."