Binance, one of the world’s leading crypto exchanges, has seen its average daily trading volumes plunge below $10 billion in recent weeks, a 60% decline from averages between $20-30 billion last year.
The drop comes as Binance is under intense regulatory scrutiny and slapped with a $4 billion penalty from the U.S. Department of Justice (DOJ) as a settlement for all allegations involving violation of federal security laws.
According to blockchain data analytics platform Kaiko, Binance facilitated most of its 2022 trading volumes by offering zero-fee transactions. The freewheeling model was halted early this year but has not prevented trading activity from contracting.
Amid intense legal scrutiny from the U.S., volumes have been evaporating even without charges being formally applied by the DOJ as of Nov. 20.
While the $4 billion fine is hefty, Binance will likely enter a deferred prosecution agreement with the U.S. government, which might permit them to pay fines within two years.
Nonetheless, coming up with $4 billion in penalties while pivoting its business model to comply with intensified regulations worsened by dropping trading volume, Kaiko notes, may pose significant challenges for Binance.
As it is, the steep volume drop suggests traders and protocols have been moving away from the BNB Chain and Binance in response to the legal uncertainty. In light of this and as evidenced from Kaiko’s data, rival exchanges that emphasize regulatory compliance in major jurisdictions, including the U.S. and others, may be positioned to capture Binance’s market share.
Besides the fine, Binance’s CEO, Changpeng Zhao, also potentially faces direct criminal charges that he has to settle with the U.S. government.
In June 2023, the SEC sued Binance and Zhao. The lawsuit included 13 charges, among them the sale of unregistered securities.
Soon after, the regulator requested that Binance.US’s digital assets be frozen. As a result, users lost the ability to deposit USD, which caused a rush of sales from those who wished to withdraw funds in fiat.