On Friday evening one of the chain’s senior and most prominent analysts Willy Woo posed concerns about Binance’s Secure Asset Fund for Users (SAFU). SAFU is an insurance fund with 44% of the fund backed by BNB.
Binance added $300 million in Bitcoin and $700 million in BNB tokens to its mandatory insurance pool on November 9th. Since then, the fund had reduced to $837 million owing to market volatility.
According to Woo injecting the “incidence-correlated BNB” into the insurance fund is not a good option for the fund’s long-term sustainability.
Moreover, Willy Woo further stretched his argument by comparing how the cryptocurrency exchange FTX managed its insurance fund. FTX and Binance both are backing their insurance fund with their native tokens.
Willy Woo Believes That SAFU Insurance Fund is Risky
In his tweet published on November 25th, the cryptocurrency analyst said that 44% of the SAFU fund’s current volume is backed by BNB.
It now has BNB worth $367 and Bitcoin worth $270. The fund’s value has fallen far below $1 billion due to fluctuations in bitcoin value.
According to Willy, more Bitcoins should be injected into the SAFU fund to achieve long-term sustainability.
On The Other Hand
According to Willy Woo, the Binance SAFU fund can take a serious hit in volatile market circumstances. He also added that Binance’s stability and future growth are directly interlinked, with the performance of its BNB coin.
As a result, injecting BNB worth $300 million is a concern not only for Binance and its investors but also for the Cryptocurrency market.
After the collapse of the FTX exchange, Binance should be more careful about its investments.
Why Investors Should Care
A rescue fund might assist in restoring investors’ trust as the crypto sector continues to face the possibility of contagion following the FTX crisis.
However, its worth mentioning that Sam Bankman-Fried appears to have utilized FTT to support his exchange and its subsidiary trading business, Alameda Research, which finally contributed to the demise of FTX.
Binance is repeating the same pattern, investing its BNB token to scale up its SAFU fund.
Relying too heavily on the native token seems like a strategy from Binance through which the company seeks to bring stability to its SAFU fund.
The current value of the fund has already dropped well below $1 billion. This is a clear indication that things are not going in the right direction for Binance as planned.
Binance having its mandatory insurance fund filled with BNB tokens is hard to swallow for the entire crypto community. Because the fund is not only risky but also losing its economy of scale.