Why is Binance in a hurry to sell its Russian business to a newly launched exchange?

Author: Nianqing, ChainCatcher

On September 27, Binance officially announced that it has sold all of its Russian operations to the cryptocurrency exchange CommEX. To ensure a smooth exit for existing Russian users, the exit process will last for one year. Part of the KYC registration for new users in Russia will be immediately transferred to CommEX and will gradually expand over time. In the coming months, Binance will cease all exchange services and business lines in Russia. Binance will not receive ongoing revenue sharing from this sale, nor will it retain any options to repurchase business shares.

According to the official description, the sale of all operations in Russia is due to "the non-compliance of conducting business in Russia with Binance's compliance strategy," but the official did not provide a specific explanation of the compliance strategy.

Interestingly, the buyer of Binance's Russian operations, CommEX, is a cryptocurrency exchange that officially launched on September 26, with its social media accounts on X and Telegram community registered around September 25. According to CommEX's official website, CommEX is a centralized cryptocurrency exchange "supported by top crypto VCs," and the team is committed to providing "convenient, secure, and innovative services" to "global users." In addition to spot trading, CommEX also offers futures and P2P services, with its futures market providing up to 200x leverage on perpetual contracts and up to 500x leverage on simple futures. Furthermore, its spot trading market currently only offers USDT trading pairs for over 20 cryptocurrencies, and P2P fiat trading only supports the Russian Ruble (RUB). According to an official response from CommEX's Russian channel community staff, the team is gradually improving support for more cryptocurrencies, while other fiat services are yet to be launched.

Binance's choice to sell its Russian operations to what appears to be a newly established exchange has raised doubts among the public, especially among Binance users in Russia, about whether a new exchange can guarantee asset security and whether the trading depth can accommodate Binance's Russian users. However, more voices point to the idea that "CommEX may be a front for Binance's Russian operations."

Why is Binance eager to exit the Russian market?

Russia was once one of Binance's largest trading markets, and its fiat business was also one of its important operations. However, after the Russia-Ukraine war, Binance's operations in Russia became awkward.

Due to extensive sanctions imposed by the U.S. on the Russian financial sector, many Russians have been unable to wire Rubles to foreign bank accounts or exchange money for other currencies, making cryptocurrency one of the ways for Russians to escape these restrictions. In April last year, Binance began limiting the cryptocurrency wallet balance of Russian users to no more than €10,000 and blocked several accounts related to high-ranking Kremlin officials due to international sanctions against Russia.

In March of this year, Binance closed the channels for Russian users to buy and sell U.S. dollars and euros through its P2P service. It also prohibited EU citizens from buying and selling Rubles through P2P.

However, in April, media reports revealed that Binance had lifted the €10,000 deposit limit for Russian users. Subsequently, Binance officially responded that all restrictions related to sanctioned Russian citizens fully apply to the platform and its legal entities in the EU.

In May, the U.S. Department of Justice began investigating whether Binance was being illegally used to help Russia evade U.S. sanctions to transfer funds.

In August, The Wall Street Journal reported that Binance was still processing a large number of Ruble transactions, and Russian users could still transfer funds from sanctioned Russian banks to Binance accounts through multiple intermediaries. Binance also supported P2P trading of Rubles against digital tokens, with these transactions often involving banks blacklisted by the West. Recent scrutiny of Binance's peer-to-peer service website revealed that Binance had recently offered at least five sanctioned Russian banks (including Rossiya Bank and Tinkoff Bank) as payment processing options for Russian clients. Meanwhile, insiders revealed that the U.S. Department of Justice is still investigating whether Binance may have violated U.S. sanctions against Russia. However, following this report, Binance's website immediately removed these five Russian lending institutions, and a Binance spokesperson stated that the system would be regularly updated to ensure compliance with local and global regulatory standards.

Subsequently, on August 28, Binance stated through the media that due to controversies in the Russian region, it might "completely" exit the Russian market. At the same time, Binance's Russian Telegram channel was updated to announce several new rules for P2P exchange users: Russian users can only trade in Rubles (RUB) on the P2P platform, and this option is limited to users residing in Russia and verified through KYC.

Earlier this month, Gleb Kostarev, head of Binance's Eastern European and Russian operations, and Vladimir Smerkis, general manager of Binance Russia and the CIS region, both announced their departures on Facebook.

Therefore, Binance's decision to exit the Russian market is primarily due to the ongoing investigation by the U.S. Department of Justice. Additionally, apart from this investigation, Binance has become a focal point for U.S. regulatory agencies this year, having been sued in March by the U.S. Commodity Futures Trading Commission (CFTC), which claimed that its founder Changpeng Zhao and the three Binance entities he operates had repeatedly violated the Commodity Exchange Act (CEA) and CFTC regulations.

Subsequently, Binance Holdings Limited and founder Changpeng Zhao himself faced multiple securities law violations from the U.S. Securities and Exchange Commission (SEC) in June, including allegations that the overseas company operated an illegal trading platform in the U.S. and misused customer funds.

Thus, to operate in compliance, Binance had to take responsive measures.

Deep Dive into CommEX: Its Ambitions May Extend Beyond Binance's Russian Operations

Currently, CommEX's Telegram community has opened channels in Russian, English, and Korean. According to the administrator's response in the Russian channel, CommEX is registered in Seychelles, not Russia, and is a global platform focused on multiple markets (including CIS countries), with an emphasis on business in Asian countries, which is why it also opened a Korean community early on.

Although the official statement claims it is an exchange supported by numerous "top VCs," no related information has been disclosed. Users entering the community repeatedly ask questions like "Where can I find information about the exchange?" and "Who is the founder and CEO?" but these inquiries have been ignored by the administrator, who only responded that "the team will hold an AMA to address questions."

CommEX's official website shows that it currently supports four languages: Russian, English, Japanese, and Simplified Chinese. New users can choose to register using their existing Binance accounts, and the rights of new registered users include exchange, spot trading, contract trading, and simple futures trading, with a withdrawal limit of 2 BTC without KYC. Additionally, ChainCatcher reporters found that the exchange's KYC is available for multiple regions and countries, including China, and the reporter successfully passed verification within 12 hours using a Chinese ID.

Moreover, many users question the connection between CommEX and Binance. According to crypto KOL @Adam Cochran, based on the historical records of the domain's name servers, https://www.commex.com/ was first used for a commercial credit card company, and its servers were only updated on the 21st of this month.

The ability to log in to CommEX using Binance indicates that it operates on Binance Cloud, which was shut down along with the Connect product in 2022. Therefore, general partners do not have permission to operate on Binance Cloud, and even Binance partner WazirX lost the "use Binance login" privilege. Exchanges operating on Binance Cloud can share liquidity with Binance, which is why the BTC/UST trading volume on this newly launched site reached $1 million on its first day, with good bid-ask spreads on both sides…

The author believes that the evidence above is not entirely sufficient to prove that "CommEX is a shell company of Binance." However, Binance's decision to sell its Russian operations to such a newly launched exchange, without disclosing relevant information, indeed raises many doubts. We will continue to follow more developments regarding CommEX, so please stay tuned.