The Massive Binance Rugpull.

A lot of you know that I have never been

the biggest fan of CZ or of Binance. It

all goes back to years ago, the

interview between CZ and Sarah Eisen

where Sarah Eisen bluntly and in

numerous different ways asked CZ, "Do

you actually have the reserves to back

the funds you say you have?" and he

dodges the question over and over and

over again suggesting oh well we have a

proof of reserves audit but remember

that the the scam with proof of reserve

audits and then we're going to get into

the drama that contributed to this scam

in Bitcoin which we have a lot to talk

about with 19 billion in liquidations of

course Binance is now airdropping some

breadcrumbs back to people but we'll

talk about that in just a moment

understand quickly how proof of reserve

work. If you have 10 stable coins, let's

just use a very simple example to

simplify this. Let's say you have 10

stable coins, tokens, whatever. Let's

say you have 10 buckets and each of them

are worth a billion dollars. Well,

technically to support all of that

infrastructure, you would need $10

billion to say they're all backed one.

But what people do with proof of

reserves financing is they say, "Yeah,

we have $1 billion." And if you compare

1 billion to stablecoin 1, yep, we've

got one bill. Compare it to stablecoin

2, yep, we've got one bill. Compare it

to three, yep, we've got one. But they

might actually only have one bill

compared to the total of 10 that they

say they do. While at the same time

saying, yeah, yeah, we've got proof of

reserves when we compare one to one. So,

you got to be careful with this. We

don't know if that's exactly what's

going on. But that sketchiness from that

interview years ago has always made me

skeptical that the people at Binance are

shysters. And I have been a big fan of

getting away from the any of these

exchanges. Like people use them for

trading, which is great, but you want to

be off these platforms, not your keys,

not your crypto. Unfortunately, people

get suckered into leverage. And that's

where we end up getting a potential for

a disaster like what we had with Bitcoin

here. So, let's understand what happened

not just with Bitcoin on Friday, why

Bitcoin fell, but why that led to a

cascade of problems at Binance. So,

here's what happened. There were a lot

of tokens like ATM that fell to roughly

zero or IODEX or ENJ. These fell a lot.

The problem that happened on Friday

under the catalyst of Donald Trump's

trade war was that Binance was just in

the process of moving about 8 days left.

They were just in the process of moving

to actually quoting prices on their

platform using market pricing elsewhere

which is known as Oracle pricing. So the

way this basically works is if you look

at market pricing on a stock, let's

understand this because this will help

you understand exactly what happened a

lot more easily. Let's look at AMD for

example. When you look at a stock like

AMD, you see it's trading for $236 on

Robin Hood. Well, Robin Hood isn't using

their own order book to determine AMD's

pricing. They're generally going to use

information directly from the NASDAQ or

New York Stock Exchange. And so

understand that all the major brokers,

whether it's Robin Hood or Weeble or

Tasty Trades or Interactive Brokers or

Charles Schwab or JP Morgan, they're all

looking at one data feed. They're

looking at the exchanges data feed for

where that stock is listed, which means

you see the whole order book, which is

really important because if you see the

whole order book, it means you're going

to have the thickest book available.

Now, why does that matter? Because if

some big whale comes in with a $10

million order, let's say, and they hit

the sell button, well, for AMD, if

you're using the NASDAQ's pricing,

you're probably not going to eat up the

order book because there are plenty of

people. You hit a $10 million sale,

you've got plenty of people willing to

buy in that order book. Now, what if

Weeble said, "You know what? We're

actually going to use our own order

book. We're not going to use the

NASDAQ's pricing. we're just going to

use a book that is only our customers.

And now somebody comes in with a $10

million order, but you don't have enough

buyers to match up with that. What

happens then is the price could actually

artificially plummet way more than it

should based on using data available

from the entire market because you're

not using price discovery from the

entire market. You're only using price

discovery from Binance. So, of course,

if you have a lot of sellers on Binance

and you're only matching up to buyers on

Binance, so Binance can go try to make

some more money, then in a market panic,

they end up screwing you, the user on

Binance. Now, understand, Binance got

exposed for this issue. People knew this

was an issue and people said, "We need

to fix it." And so, what did Binance do?

Binance said, "All right, we're going to

go ahead and update our software. We're

going to update this software to make

sure that we're going to use pricing

that is widely available. We're going to

end this design flaw and we're going to

use Oracle data." And so that way we

don't have stuff like this happen.

Here's for example uh a particular uh

read of um USDE to USDC on curve and

what you find is that broad market data

for the stable coin showed the stable

coin during this shock this tariff shock

on Friday the stable coin only dropped

to 99.57

which is which is actually really

nominal for a stable coin movement and

generally algorithms come in really

quickly and buy this up. The whole point

of algorithmic trading is that algo say,

"Oh, well, this is a stable coin. It's

supposed to be trading at exactly $1. If

it goes down, we're going to buy it up

and stabilize it back to a dollar. If it

goes up, we sell it." And that's how

they make money. It's sort of like being

a market maker. That's how they make

their money. The problem is, if you

actually look at what happened on

Binance, in Binance's case, this stable

coin collapsed. When you compare USDE to

Tether, for example, which again should

be stabilized at one, it actually

collapsed to 65.

And because it collapsed to 65, all of a

sudden, people's accounts looked like

they had just lost a bunch of value,

which you think, okay, a 35% drop.

Should that matter?

Not if you're cash, but if you're on

leverage at Binance, using 10 to 20x

leverage at Binance, you're screwed

because now all of a sudden 20x leverage

or 30x leverage turns you into an

instant liquidation. And this is why a

lot of people on social media were

complaining and they're saying, "Hey,

wait, this is ridiculous. We just got

liquidated before our stop losses could

even trigger. That's not good." Now,

Binance comes out and suggests, "Oh,

well, this is because of heavy market

activity and we're under load and users

might be experiencing delays displaying

issues, which that also led market

makers to withdraw offering bids on

Binance, which just exacerbates the

issue. See, if you're a market maker in

a in a panic, you can make a lot of

money by providing liquidity. You know,

people want to sell. You provide

liquidity at wider spreads and you go

make it up on other platforms, but you

pick up the spreads. In English, market

makers love volatility. But the problem

was Binance's system was so damn

overwhelmed that your funds weren't safu

because the market makers dipped out cuz

they're like, "We can't even get your

software to work right now. It's

glitching out so badly. We're just not

going to provide quotes. We're not going

to quote on Binance." And so what

happens? you get even more of a

deterioration because it now looks like

the market makers rugged. Now the market

makers, who knows, maybe they were in on

it, but the argument is that the market

makers rugged because the Binance

platform failed. Now, is it a chicken or

egg problem? Who knows? But a lot of

people in this flash crash, which is

seen as the worst since 2017, look at

this and say this was insider

manipulation that people knew about this

glitch. People knew that we were going

through this transition. Here it is. A

suspicious window. On October 6th,

Binance announced plans to fix this

exact problem. The exchange said it

would switch from using its own order

book prices to more reliable external

data. The change was scheduled for

October 14th, which was yesterday. But

the flash crash happened on October

10th, right in the middle of the 8-day

window. This leads a lot of people to

say this was an attack. This was a

coordinated attack to utilize this

screwed up order book one last time and

mint billions of dollars

and then of course give some of the

money back as breadcrumbs. Now, of

course, you kind of have to pick your

side on this, but Binance is not just in

the heat for this. Binance is also

getting a lot of heat right now for this

basically leaked offering of how Binance

forces new ICOs or coin or token

listings to provide a lot of of of sort

of their base token or uh you know their

their order book if you will uh and uh

some of their reserves to Binance. So

either Binance can profit or to

potentially stabilize the market. Now

this depends on which way you want to

look at it. But take a look at this. All

of this has to do with this guy who has

a company called Try Limitless. Not

sponsored. I haven't checked it out. I

don't know anything about it. But this

guy's following's been blowing up, CJH

Tech. And he's his following's been

blowing up because he got an offer from

Binance for listing on Binance. And the

offering on Binance was very different

from Coinbase. Coinbase said, "Hey, if

you want to list on Coinbase, just build

something meaningful." Binance says,

"Hey, we want you to give us 1% so we

could do an airdrop on day one when we

listed. Then we want 3% of your token

supply so we could airdrop that in 6

months to kind of keep momentum going.

Then we want 1% to pay for our own

marketing for your product. Then we want

100% of total value locked for a token

pool on Pancake Swap. We also want a

$250,000

security deposit, they say to prevent

rugps, which there's some argument for

this. 3% to be reserved for the uh BNB

Hodler program, $200,000 worth of tokens

uh to be set aside at the best possible

pricing for Binance affiliate marketers,

and $2 million of a BNB security deposit

to get you a listing on Binance. So

basically, we want like $3 million worth

of assets and we want you to put those

where we direct them into our marketing

into our Binance stable coin uh or it's

not actually the stable coin. The BNB is

not a stable coin, but into the Binance

token. We want uh you to pay for our

marketing and we'll do all this stuff

for you. You're going to pay for it out

of the proceeds from your offering and

you're going to put all this money in as

a as a security deposit so that way you

can't rug or at least you reduce the

chances of rugging. Now, this offering

was supposed to be under an NDA, but

what happened is CJ got the offer from

the Binance salesperson before he ever

signed the NDA. This is what he says.

And Binance is now lashing out like CZ

blocked this guy. CZ is, you know, and

Binance are claiming that this guy's a

fraud, that he shouldn't be leaking this

information. But all it's doing is

actually providing more evidence. See,

here's CZ. Wow, this guy really clout

chasing, but what a loser. I didn't even

know who he was until he posted a fake

image saying I blocked him. I could make

it real, but I will choose to mute

instead. Ignore is the best rejection.

Meanwhile, CZ is literally lashing out

on X and he probably blocked him and

then unblocked him or whatever. Uh, this

is just leading people to combine these

two things and go, "Man, there's some

shady stuff going on at Binance." So,

did Binance have anything to do with

this order book manipulation and this

$19 billion rug pull that left people

seeing their life savings absolutely

destroyed? I mean, you had people

complaining about getting rugged for $9

million

instantaneously. The market reaction was

so violent heavily because of Binance's

failed orderbook system that, you know,

here's a guy who was like, "I thought

about taking my own life. I lost

$400,000.

There's another guy who's like, I lost

$9 million basically instantaneously.

Worst day of my life financially. And

these are people who've got like Binance

and BNB in their their username on

Twitter. These are people who are like

super excited uh about Binance. They

love the leverage they could get there.

They're super like gung-ho uh users of

this platform who got rubbed. And so a

lot of folks are pissed. They're going,

"Wait, Binance is now going to give I

think it's up to $300 million in

Actually, I wrote down my notes on this.

Uh Binance is giving some money back in

the form of an airdrop." But a lot of

people are like, "Dude, this this

doesn't even scratch the surface of the

damage that was caused." So, if you look

at the uh distributions, Binance is

going to distribute between $4 and

$6,000 in USDC totaling $300 million to

eligible losers who were liquidated by

at least $50. And the liquidations

represent at least the 30% loss ratio of

the account. Now, what's really

interesting about this is

$300 million divided by the user base

that got liquidated here works out to

about $187

of stimulus per one trader because 1.6

million people lost because of that

Binance glitch. That works out to $187

per user,

$4 to $6,000 range. you know, worst

downturn since the FTX disaster. So,

a lot of folks are like, "This is crazy.

It was their fault $19 billion got

liquidated, and they're giving a

fraction back at the same time as, you

know, people see this manipulation of

potentially new listings as just a way

for Binance to profit off the backs of

people." Now, other people say, "Hey,

this is actually just Binance trying to

stabilize new listings." And I think

they have somewhat of a point there. I

think new listings are quite likely to

often get rugpulled. So, requiring

security deposits is probably a smart

thing, not surprising. Now, is it

Binance's fault that they ended up

leading this, you know, cross margin

liquidation, which is basically where

you, you know, leverage up your wrapped

Ethereum or wrapped Salana positions or

your stable coin positions to get 20 to

30x leverage on Binance. Is it likely

that that very leverage system and the

failure failures of the technology

platform led to a lot of people lose

money? Of course. Which is ironic

because now what a lot of people in the

crypto community are doing is they're

actually saying hey we need a regulated

exchange which is kind of hilarious

because like the whole point that you

know people got so excited about with

crypto with for was that oh it's going

to be deregulated DeFi is great but this

is exactly what happens when you have

unregulated broker dealers and

exchanges. Now, most of the lawsuits

from the SEC against platforms like uh

you know uh Binance have been dropped

because Trump has gone you know all in

pro crypto. But this is exactly why

people are like bro like nobody likes

the suits but you want some safeguards

at the suits and this is why investor

protections exist because when people

get rugged like this they're like yo

where was the government? It's like,

well, you wanted DeFi, you know, even

though it's a centralized exchange,

obviously, you wanted no regulation. You

wanted less regulation. So, it's kind of

ironic now how many people are like, I'm

taking my money out of Binance. I want a

regulated platform. It's like, well,

yeah. Uh, anyway, so, uh, this is now

where people are joking like your funds

are not SEFU at Binance because Binance

always says this. this by Safu has to do

with, you know, their desire uh to say

that funds are backed one to one uh

especially in stable coin assets. But

again, I started this whole segment out

with saying you got to be careful of

that pitch because we've never actually

seen at least I have it. Maybe I'm

wrong. Maybe it's out there. Don't sue

me, bro. This is my video my my opinion

here, right? But the reserves in the

SEFU fund, they're designed to protect

users in emergencies.

Uh but like this is this is not backed

at least that I've seen by credible

audits. So the SEFU fund yeah it exists

but we don't have the actual

transparency to say oh yeah yeah yeah

we're actually good here. It's not like

there's cypic protection uh that you

have that's backed by you know or or

like FDIC protection that's basically

backed by Jerome Powell. You're not you

don't have those sort of backings. So,

the fund exists, lacks independent,

verified thirdparty audits as far as I

can tell. They show Binance, like they

show wallet addresses, but we don't know

what kind of debts are against that,

right? So, we have to be careful of that

as well. Like, it's easy to flash around

a wallet address, but how many

liabilities are against that? So, you

got to be really careful with these

these platforms. You know, it's it's uh

they're they're in a little bit of a

poopy dupy. You know, is Binance going

to go bankrupt here or whatever? No.

Like, they'll get through this. they'll

be fine. Uh but

you know, it's something to pay

attention to. Now, I know a lot of

people are talking about hyperlid. Look,

what you have to remember is leverage,

leverage, leverage, leverage in this

sort of market. If there's anything that

I could advocate, and I hate sounding

like this because it's like so Dave

Ramseyesque, and I've always been a big

fan of like mortgage debt and like

secured loans that I have never before

in my life been of this mindset that

this is a great time to do whatever you

can, especially at all-time highs, to

pay off debt. Do whatever you can to pay

off debt. Get out of debt. Be safe.

Because look, I get it. We love that

song are going up. You know, this

morning on the alpha report, we're like,

"Hey, MP materials, it's going to go

down." Rejecting off 100. It's done it

multiple times before. Look at what's

happening. Okay, we were at pre-market.

We were at like 98.65. It's now at $89.

That's like a 9% decline from what we

talked about in the alpha report this

morning. My point is downturns can

happen very, very, very, very, very

quickly. And you need to be prepared for

that. And the best way to be prepared is

not losing sleep at night because you're

going to get margin called. You're going

to get screwed by debt. Understand the

debts you have in life. It's not just

credit cards. It's not just buy now pay

later. It's not just margin debt. It's

all of it together. Household debt. And

it's taxes that you owe, right?

Remember, you got tax bills coming,

credit cards, buy now pay later, uh

utility bills, mortgage bills, rent

payments, car bills, car debt, student

loan debt, whatever. All that is

fine when we're at the top of the

market. But when we go into a recession,

which I pray we don't. I pray we don't.

But when we do, all that stuff stacks up

and it makes for a really crappy decade

cuz, you know, I think if we hit a

recession, it's going to be a decade of

hell to to try to actually get people

jobs again. That's why I hope we don't.

Uh, and so that's why I'm a big fan of

preparing for that. Anyway, that's my

take on what's going on with Binance.

Why not advertise these things that you

told us here? I feel like nobody else

knows about this.

>> We'll we'll try a little advertising and

see how it goes.

>> Congratulations, man. You have done so

much. People love you. People look up to

you.

>> Kevin Praath there, financial analyst

and YouTuber. Meet Kevin. Always great

to get your take.