Author: flowie, ChainCatcher

Web3 giants have finally begun to officially "eradicate corruption."

This morning, Binance reported that employees used their former positions to engage in insider trading and profited from it. The individuals involved have been suspended and may even face legal consequences. While internal corruption at Binance is not a new revelation, this appears to be the first time Binance has publicly disclosed details of internal trading as part of its "eradication" efforts.

Following Binance's lead in punishing employees for insider trading, other exchanges like Huobi have also indicated they will follow suit. However, compared to the normalized "eradication" efforts of Web2 giants, the path to "eradication" for Web3 companies has only just begun.

Public Disclosure of Insider Trading Details: Is the Cryptocurrency Industry's "Eradication" Officially Launched?

From Binance's announcement, this eradication effort stems from a report made two days ago.

The employee involved was part of the recently popular Binance Wallet team. This employee previously held a business development position at BNB Chain and used information obtained from that role to purchase tokens of a certain project in advance, subsequently selling them quickly after the project's announcement, resulting in substantial profits.

In response, Binance has suspended the employee and may pursue legal action against them. The four "whistleblowers" who reported the incident have also been rewarded with $100,000. Binance has also provided an official reporting channel for the community.

However, the insider trading by Binance employees may have already been publicly exposed by several Twitter users before the official report was received.

@pycharts and @BroLeonAus shared on-chain evidence pointing to Binance Wallet BD and growth employee Freddie Ng's involvement in the $UUU insider trading scheme.

@BroLeonAus also detailed the specific actions taken, stating that Freddie Ng likely knew in advance that $UUU was going to surge, using his secondary account to spend 10 BNB to purchase $UUU worth $312,000 after the price opened low, then transferring all to a wash trading wallet and selling at a high price through a Bitget wallet, with the first profit being 181.4 BNB, valued at $110,000.

Additionally, Freddie Ng distributed the remaining $UUU to eight different addresses, each worth several tens of thousands of dollars. The community discovered this because the employee's wash trading wallet was registered under the real name freddieng.bn 121 days ago.

It is not new for employees of exchanges like Binance to be exposed for insider trading using their positions. Each instance of public oversight and reporting from the community has pressured Binance to strengthen its eradication efforts.

In February of last year, the significant drop in RON after its listing on Binance led to suspicions of insider trading. Although Binance responded that it was a misunderstanding, it also formally stated that it would take corruption issues seriously.

Binance mentioned three specific measures for eradication: strengthening management and firewalls in the listing team; canceling listings if project information is leaked; and rewarding whistleblowers to encourage public oversight.

Earlier this year, an author named Qwertyuiopasdfghj published a public letter on Medium, directly accusing Binance Labs (now renamed YZi Labs) of serious "internal corruption," mentioning collusion between several senior executives at Binance Labs and the projects they invested in for profit transfer.

Although Binance has not publicly investigated or disclosed the results of this report, after renaming Binance Labs to YZi Labs, they mentioned that the information of Labs employees is public, and evidence can be submitted directly to Zhao Changpeng and He Yi for reporting.

He Yi also mentioned in a Space earlier this year that Binance has conducted over 120 internal audits in the past two years, dismissing over 60 employees for violations and recovering more than $30 million in illicit gains.

However, Binance has not previously disclosed details of corruption. The recent disclosure of insider trading details involving Binance Wallet team employees may signal a shift in Binance's eradication efforts. In the face of ineffective wealth effects and compliance pressures, publicly addressing corruption may be one of the best ways for leading exchanges like Binance to gain community trust.

What Can Web3 Learn from Over a Decade of "Eradication" Efforts by Web2 Giants?

Corruption has long been a difficult issue to eradicate in large companies. However, compared to Web3 companies, traditional Web2 giants have normalized their eradication efforts after more than a decade of action.

Since Alibaba established its "Integrity and Compliance Department" in 2012 to promote internal corruption eradication, other internet giants have followed suit and initiated formal eradication efforts. Common methods employed by internet giants include:

Supervision, such as establishing dedicated anti-corruption investigation departments, creating internal reporting mechanisms, and most will regularly publish anti-fraud reports.

JD.com has set up a special fund of 10 million yuan annually for anti-corruption rewards, incentivizing individuals and units to report violations. Recently, ByteDance published its 2024 company fraud results report, detailing the number of employees dismissed and referred to judicial authorities for violations; analyzing the types of violations and key areas involved, such as corruption concentrated in procurement, monetization of technical power, and embezzlement.

Internet companies also implement joint actions and blacklist systems. For example, Tencent, Baidu, Meituan, JD.com, and others have jointly initiated the Sunshine Integrity Alliance, involving nearly 800 companies that upload and share lists of untrustworthy employees.

Additionally, internet companies utilize big data and artificial intelligence technologies to monitor and analyze internal operations in real-time, promptly identifying and addressing fraudulent activities. For instance, ByteDance has established a dedicated database from which monitoring personnel can retrieve data, and the system automatically identifies risks and alerts business leaders.

Besides supervision, internet companies also conduct internal training to enhance employees' compliance awareness.

In contrast to the Web2 sector, Web3 exchanges led by Binance involve financial transactions, making it easier for internal employees to have both the motive and means to engage in corruption. Web3 giants indeed need to take the lead in normalizing and systematizing "eradication" efforts.

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