Binance battles to save its brand after record $6.3bn crypto hack

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Key takeaways

Binance suffered a record $6.3bn cyber heist, likely perpetrated by North Korean hackers.
The exchange processed $4.6bn in withdrawals following the breach, resulting in a net outflow of $3.6bn.
Binance confirmed it will cover all user losses and absorb the financial impact.

After a multibillion-dollar hack, Binance faces a crisis of trust

The world’s largest cryptocurrency exchange endured the world’s largest online theft late last week. Binance was hit by a $6.3bn heist that, according to experts, was likely the work of North Korean hackers.

More than $2.5bn of the $6.3bn was taken in one transaction alone. A Binance engineer’s laptop was infiltrated, which in turn allowed the attackers to drain wallets. Binance later added that there were “additional points of breach” in its systems. The exchange said on X it would “cover all losses” and that “user funds are safe”. It also said it had frozen about half the funds targeted in the hack, stopping the thieves from making off with that tranche of cryptocurrency.

Most customers won’t have legal protections. Crypto users are not covered by formal deposit protections in countries such as the US, UK or Australia, meaning they won’t be reimbursed by their governments for their losses if an exchange is hacked or goes bankrupt. In Australia, you can claim a capital loss on your tax return if you can offer proof that crypto asset was lost or stolen.

As Binance worked to contain the technical damage from the hack, it faced fallout from angry, scared users. The company announced Sunday afternoon that it had processed $4.6bn in withdrawals and $1bn in deposits, resulting in a net outflow of about $3.6bn – representing 2.1% of its $171bn in total assets under management.

Yesterday, former Binance CEO Changpeng Zhao warned that crypto scammers are now in “overdrive”, circulating screenshots of fake recompense schemes that promise $150 in free compensation for withdrawal suspensions. Binance has confirmed that it is false information and the screenshots are digitally altered. The hack has also spooked traditional financial markets, with investors also pulling out funds from Bitcoin exchange-traded funds in the US.

Yi He, co-founder of Binance and longtime partner of Zhao, has said that the company’s top priority was to “ensure the environment is secure, after which users can withdraw their funds and Binance can resume operations”. Alongside a proof of its reserves, the company tweeted: “Our commitment is unchanged: Binance will absorb the financial impact of the stolen funds, not our users.”

The name Binance was already associated with crime before the hack. Zhao pleaded guilty to violating US anti-money laundering laws in 2023 and stepped down as CEO. It’s no FTX, but the company faces an uphill battle to save its brand from $6.3bn worth of permanent damage.

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