By
Chimamanda U. Martha
July 5th, 2024
As part of the deal, Binance agreed to fully compensate Gopax users for losses from its crypto custody service, GOFi, which stored funds with Genesis before it collapsed in November 2022.
Binance, the largest crypto exchange, faces scrutiny following allegations that it secretly sold claims held by Gopax users connected to the collapsed crypto lender Genesis Global. The report, published by South Korean news outlet Hankyung on Monday, centers around Binance’s acquisition of Gopax, a top-five South Korean crypto exchange, in 2023.
As part of the deal, Binance committed to fully reimbursing Gopax users for losses incurred through its crypto custody service, GOFi, which held funds with Genesis before their November 2022 collapse. GOFi users collectively suffered an estimated 70 billion Korean won (equivalent to $58 million).
While Gopax and Binance have compensated users for approximately 50% of the losses, the recent report raises questions about the methods used.
Binance Secretly Sold GOFi User Claims
The report alleges that Binance initially used its Industry Recovery Initiative (IRI) to cover the first round of repayments, worth only 1.5 billion won. However, for the second round, Binance allegedly bypassed the IRI and instead opted for a more controversial approach.
Binance secretly sold GOFi user claims to a third party in August 2023 at a deeply discounted price, reportedly less than 50% of their face value. This transaction was allegedly executed without informing or obtaining consent from affected investors.
The timing of this alleged sale adds another layer of concern. Earlier this month, a New York bankruptcy court approved a $2 billion settlement between Genesis and the state attorney general’s office. This settlement allows Genesis to return 77% of customer claims to creditors.
Hankyung’s source alleges that Gopax has remained silent about the Genesis settlement, likely because the user claims were already sold at a significant discount. With the recent surge in Bitcoin prices, the value of those claims would have risen proportionally, potentially resulting in even greater losses for GOFi investors.
Binance’s Retreat
Steve Kim, Binance’s Asia-Pacific business development director, hinted at the possibility of reducing the company’s stake in Gopax. During a January 2024 roundtable discussion, Kim mentioned early-stage talks about becoming Gopax’s second-largest shareholder. The strategic move aims to protect Binance from increasing legal and regulatory pressures.
Binance CEO Richard Teng also visited Seoul in March to meet with financial regulators, according to local media reports. These developments suggest that Binance may be seeking to limit its exposure to the controversy while Korean regulators continue their scrutiny.