Removing corruption, it's finally the turn of the Web3 giants

Author: flowie, ChainCatcher

The major players in Web3 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 involved parties have been suspended and may even face legal repercussions. 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 to "eradicate corruption."

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

Public Disclosure of Insider Trading Details: Is Binance's "Eradication of Corruption" Officially Underway?

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

The employee involved was part of the recently popular Binance Wallet team. This employee, who previously held a business development position at BNB Chain, used information obtained from their former role to purchase tokens of a certain project in advance, and then quickly sold them for a substantial profit after the project announcement was made.

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, it appears that the insider trading by Binance employees may have been publicly exposed by several Twitter users even before the official report was received.

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

@BroLeonAus also outlined 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 low opening, then transferring everything to a wash wallet and selling at a high price through a Bitget wallet, making an initial profit of 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 wallet used for the insider trading was registered under the name freddieng.bn 121 days ago.

It is not uncommon for employees at exchanges like Binance to be reported for insider trading using their positions. Each instance of public oversight and reporting from the community has pressured Binance to strengthen its anti-corruption efforts.

In February of last year, the significant drop in RON's price 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 anti-corruption measures: strengthening the management and firewalls of 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 an open 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 Binance Labs was renamed to YZi Labs, it stated that the employee information at Labs 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 had conducted over 120 internal audits in the past two years, terminating more than 60 employees for violations and recovering over $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 anti-corruption efforts. In the face of diminishing wealth effects and compliance pressures, publicly eradicating corruption may be one of the best ways for leading exchanges like Binance to gain community trust.

What Can Web2 Giants' Over a Decade of "Eradication of Corruption" Teach Us?

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

Since Alibaba established its "Integrity and Compliance Department" in 2012 to promote internal anti-corruption work, other internet giants have followed suit and initiated formal anti-corruption efforts. Common anti-corruption measures among internet giants include:

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

JD.com has set up a special fund of 10 million yuan each year for anti-corruption rewards, incentivizing reports of violations by individuals or units. 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, embezzlement, and information black market transactions.

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 detecting and addressing fraudulent behavior. 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.

Compared to the Web2 sector, Web3 exchanges like Binance are involved in financial transactions, making it easier for internal employees to have both the motive and means to engage in corruption. Web3 companies indeed need to take the lead in normalizing and systematizing the "eradication of corruption."