Brisbane crypto exchange Swyftx is heavily exposed to controversial global crypto exchange Binance following the collapse of FTX

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Swyftx defended its broker-based model and pushed back against claims that it is an Australian marketing arm for Binance.

We are a broker and Binance is the largest liquidity provider we use, a spokesperson wrote in an email.

We route transactions between exchange partners to provide clients with the best prices and the most liquid execution.

No Comments from Binance

Binance Australia declined to comment on its relationship with Swyftx, nor did it respond to detailed questions regarding whether digital assets purchased by Swyftx are stored at Binance.

Regarding the US-based criminal investigations, Binance Australia pointed to a statement on Twitter that read: We have no insight into the inner workings of the US Department of Justice, and it would not be appropriate for us to make any comments if we had any.

Swyftx customers have expressed concern that their crypto assets could be stored in Binance, putting them at risk if the global exchange collapses like Bahamas-based FTX did recently, eviscerating billions of dollars of customer money.

Swyftx, which was founded by Alex Harper and Angus Goldman in 2018, insisted on storing client assets with a third-party custody provider called Fireblocks, as well as on the Binance exchange to provide liquidity.

We undertake a daily reconciliation of the balance of client assets held in our wallets, liquidity partners and bank accounts with the balance of assets owed to our clients via our internal register (a process also verified and tested by independent auditors), the gate -word of Swyftx said.

It goes without saying that we separate our operational business activities from our business activities with our customers, the spokesperson said.

Issues Raised

But a former company insider said Swyftx’s internal finances aren’t as clearly delineated as the company suggests. Swyftx client withdrawals, which are visible due to the public nature of the blockchain, showed that Swyftx client cryptocurrencies were transferred directly from Binance wallets.

This raises questions about how many client assets are visible through the Swyftx app and in Swyftx-branded accounts that are stored in Australia or within the Binance business.

Whether client crypto assets are used elsewhere in crypto exchange operations is a priority for investors, following revelations that FTX founder Sam Bankman-Fried oversaw around $8 billion. ($11.7 billion) of customer money transferred off the exchange.

Mr Bankman-Fried was arrested in the Bahamas on Tuesday and faces charges of wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering in the United States .

He was denied bail on the grounds that he remains a flight risk and will be held in a correctional facility until February.

Lawyers for Mr Bankman-Frieds have indicated he will fight extradition to the United States.

Binance Founder and CEO Mr. Zhao was instrumental in the collapse of FTX; his announcement to the market that he intended to sell over US$500 million in the FTX token sparked a stock market rush in early November.

FTX was unable to stem $6 billion in outflows as customers rushed to withdraw their money from the exchange.

Swyftx has sought to distance itself from the FTX fiasco, although the threat of aggressive lawsuits from US prosecutors against its main partner Binance has further clouded the company’s outlook.

A weaker crypto environment has already forced Swyftx to lay off 35% of its workforce, or around 90 people, mostly in marketing and sales roles.

Despite earning $36.7 million last year, The Australian Financial Review understands that Swyftx’s margins are under pressure as volumes fall.

Swyftx generates revenue by charging trading fees, which have historically been high by Australian standards, because it has to pay to access Binances cryptocurrencies. Swyftx is currently undergoing a capital increase.

Earlier this year, Swyftx launched a Swyftx Earn product that generated returns through on-chain staking for blockchain rewards as well as lending to third parties for interest paid.

The Swyftx spokesperson said the company no longer lends customer assets under its Earn program.

Binance has made a name for itself as a crypto exchange that would allow a rapidly growing variety of crypto tokens on the platform.

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