Why is Binance leaving Canada?

Binance, the world's largest crypto exchange, announced last month that it would be exiting Canada. At the time, it blamed "new guidance" issued by Canada's securities regulators. We now have an even more detailed explanation from Binance about the nature of this "new guidance."

First, Binance says that Canadian securities regulators refused to approve its BUSD stablecoin.

If you explore this claim more closely, it just doesn't hold water. Canadians use Canadian dollars for almost everything, but BUSD is a U.S. dollar stablecoin. There's no way that any exchange's strategy for attracting Canadian customers would depend to any significant degree on providing us with U.S. dollars. (And if this was a major part of Binance's Canadian strategy, what on earth were its executives thinking?)

The other reason this excuse is a flimsy one is that the BUSD stablecoin was already due to be retired by February 2024, on orders emanating from the New York Department of Financial Services. Surely Binance's entire Canadian strategy didn't rely on a stablecoin that was destined to become defunct anyway.

The second excuse Binance gave for its departure was new guidance that its token BNB (if approved) would be subject to "investment limits." What Binance is presumably referring to is the regulatory line that most Canadian securities regulators drawn between restricted crypto assets and specified crypto assets. If a crypto asset is a specified asset, exchanges can let their customers buy it without limit. But restricted crypto faces a $30,000 ceiling, waived only if you are an eligible or accredited crypto investor.

So long story short, Binance says it was blindsided by BNB being deemed a restricted crypto asset.

But surely this couldn't have come as a sudden surprise to Binance. Twenty-three crypto exchanges have sought Canadian regulatory approval over the last three years, and in each case the list of approved specified assets (i.e. those not subject to buying limits) has been consistently confined to bitcoin, ether, bitcoin cash, and litecoin. It seems very unlikely that Binance's entire strategy for entering Canada depended on trying to add BNB to what has always been a set-in-stone list.

If Binance didn't leave because of a prohibition on BUSD or limits on BNB, then why did it leave?

One possibility is that Binance may have got wind of a recently unveiled Ontario Securities Commission's investigation into Binance's practices, and decided to cut its losses.

Alternatively, Binance may have belatedly realized that it simply didn't have the institutional chops to comply with Canada's regulatory framework. For instance, in order to protect customers from malfeasance, exchanges that want to deal with Canadians must keep 80% of all crypto at a third-party custodian. Binance doesn't currently use a third-party custodian, so it would have had to build a new platform for Canadians.

Realizing only after it had launched itself on a path to regulated status that it couldn't comply, Binance needed a face-saving reason to cut & run. When Canadian regulators provided Binance with the first round of feedback this spring, the exchange seized on this "new guidance" as its pretext for leaving, thus allowing it to blame regulators rather than blaming itself.