Binance CEO asks users to report ‘suspicious’ activity to its tip line, after reports flag insider trading on crypto exchanges

The need to prevent employees from trading early “is why we even try not to let project teams know when [tokens] will be listed,” Zhao tweeted.

Zhao’s tweets appear to be a response to research from compliance software producer Argus, which highlighted how 46 crypto wallets had purchased specific cryptocurrencies in the week before those coins listed on major exchanges, like Coinbase and Binance. The price of the tokens would rise after a listing, which allowed the wallets to make a tidy profit on their holdings. 

In one case highlighted by the Wall Street Journal, one wallet accumulated $360,000 of Gnosis tokens—a coin used in prediction markets, where traders trade on the outcome of events—days before it was listed on Binance. The wallet then dumped its Gnosis holdings within minutes of the listing, netting its owner $500,000, or a 40% return. 

(Gnosis tokens are now selling for $219.33, per market tracker Coingecko, which is close to half the coin’s immediate post-listing price of $417.30)

Argus calculated that the wallets together were able to make at least $1.7 million in profits from these trades.

Neither Argus nor the Journal could determine who owned the 46 wallets in question. Yet, on Twitter, Zhao claimed that three unnamed investigators determined that “none [are] associated with Binance employees.”

The report from Argus isn’t the only time crypto exchanges have been accused of facilitating “front-running” activities, which is when a trader buys or sells an asset in advance of a transaction that affects its price.

In 2021, the Commodities Futures Trade Commission reportedly expanded its exploratory probe into Binance to include insider trading, investigating whether employees at the company had traded cryptocurrencies in advance of customer orders in order to pocket gains.

Concerns about people “front-running” listing announcements on Coinbase led CEO Brian Armstrong to write in April that the exchange had a “zero tolerance” policy for leaking information and that Coinbase employees are mandated to trade crypto on the exchange itself, allowing the company to monitor for “prohibited trading activities.”

Armstrong also said that Coinbase would work to close the space for “front-running” by announcing new tokens to be listed as soon as the decision was made, even before any technical work had been done, “to try and prevent on-chain data giving signal to watchful traders.”

Yet, like Zhao, Armstrong admitted information can still leak out into the community, as “there is always the possibility that someone inside Coinbase could, wittingly or unwittingly, leak information to outsiders engaging in illegal activity.”