Swyftx has defended its broker-based model and dismissed claims that it is an Australian-facing “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 trades through 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 about whether digital assets purchased by Swyftx are stored with Binance.
Regarding the US-based criminal investigation, Binance Australia pointed to a statement on Twitter that read: “We have no insight into the inner workings of the US Department of Justice, nor would it be appropriate for us to comment if we did. “
Swyftx clients have expressed concerns that their crypto assets could be stored in Binance, putting them at risk should the global exchange collapse as the Bahamas-based FTX recently did, eviscerating billions of dollars of client money.
Swyftx, founded by Alex Harper and Angus Goldman in 2018, has insisted on holding client assets at a third-party custody provider called Fireblocks, as well as on the Binance exchange to provide liquidity.
“We carry out a daily reconciliation of the balance of client assets held in our portfolios, liquidity partners and bank accounts with the balance of assets owed to our clients via our internal ledger (a process also verified and tested by independent auditors)”, the Swyftx spokesperson said.
“It goes without saying that we separate our operational business activities from our customers’ business activities,” the spokesperson said.
But a former firm insider said Swyftx’s internal finances aren’t as clearly demarcated as the company suggests. Withdrawals from Swyftx customers, which are visible due to the public nature of the blockchain, demonstrated that Swyftx customers’ cryptocurrencies were transferred directly from Binance wallets.
This raises questions about how much customer assets, visible through the Swyftx app and in Swyftx branded accounts, are stored in Australia or within the Binance business.
Having clients’ crypto assets used elsewhere in cryptocurrency exchange operations is a priority for investors, following revelations that FTX founder Sam Bankman-Fried had overseen an estimated $8 billion ($11.7 billion dollars) of customer money transferred from 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 because he remains a flight risk and will be held in a correctional facility until February.
Bankman-Fried’s lawyers have indicated that he will oppose 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 more than $500 million in the FTX token sparked a stock market “run” in early November.
FTX was unable to stem $6 billion in outflows as customers scrambled to withdraw their money from the exchange.
Swyftx has been trying to distance itself from the FTX fiasco, even as the threat from US prosecutors to take aggressive action against its lead partner Binance has further darkened the company’s prospects.
A weaker crypto environment has already forced Swyftx to lay off 35% of its workforce, around 90 people mostly in marketing and sales roles.
Despite posting a profit of $36.7 million last year, The Australian Financial Review understands that Swyftx’s margins are under pressure due to declining volumes.
Swyftx generates revenue by charging trading fees, which have historically been high by Australian standards because it has to pay for access to Binance cryptocurrencies. Swyftx is currently undergoing a capital increase.
Earlier this year, Swyftx released a “Swyftx Earn” product that generated returns through on-chain staking for blockchain rewards and lending to third parties for interest payments.
A Swyftx spokesperson said the company was no longer lending customers goods as part of its Earn program.
Binance made a name for itself as a cryptocurrency exchange that would enable a rapidly growing variety of crypto tokens on the platform.