Repeated incidents, insider trading becomes the downfall of crypto exchanges?

Author: Chloe, ChainCatcher

Recently, Binance was once again embroiled in a scandal involving internal employees suspected of insider trading. On December 7, a Binance employee exploited their position to promote a newly issued token on official social media, profiting personally from it. Internal corruption incidents at Binance are not the first occurrence; a similar case happened in March this year. Although the official stance emphasizes zero tolerance and actively responds, the market still criticizes the proliferation of so-called altcoins as pump-and-dump schemes. Retail investors face not only institutional interests but also need to guard against internal employees exploiting their privileges for arbitrage.

Just after issuing a token, the official released related posts

On December 7, a token called “Year of the Yellow Fruit” (abbreviated as YEAR or “Yellow Fruit Year”) was launched on BNB Chain at 1:29. Less than a minute later, Binance Futures’ official Twitter account @BinanceFutures posted a tweet at 1:30, implying the token’s potential through text and images.

According to data, the token’s price surged over 900% after the post, reaching a peak of $0.0061, with a fully diluted valuation (FDV) of $6 million. As of press time, it has fallen more than 75.3% and now trades at $0.001507. The coincidental timing of the post has led the community to suspect that the employee who published it was attempting to manipulate the market and profit from their position.

DLNews pointed out that the inspiration for the “Yellow Fruit Year” token initially came from a post published by Binance’s official account on December 4, titled “2026: the year of the yellow fruit,” which quoted statements from former Goldman Sachs executive Raoul Pal and Coin Bureau founder Nic Puckrin at Binance Blockchain Week. The message encouraged traders to “plant and expect a harvest,” aligning with the images and text posted by the internal employee.

Binance stated that an initial investigation confirmed that an internal employee was suspected of using their position to seek personal gains. The involved employee has been suspended immediately, and Binance has proactively contacted relevant authorities in the employee’s jurisdiction to seek legal action. Additionally, rewards of $100,000 will be distributed evenly among all users who submitted valid reports, according to the bounty promise.

Ironically, just one day before the incident, He Yi posted that Binance employees are not allowed to participate in any token issuance or promotion, but the next day, an internal employee was caught revealing insider information and openly issuing tokens, publicly embarrassing the company.

This reflects a fundamental issue: since on-chain addresses do not require KYC, and with regulatory oversight lacking, exchanges find it difficult to supervise all employee activities—even with full monitoring of work computers and mobile devices—leaving ample room for insider trading. Major exchanges like Coinbase and OKX have also experienced similar cases.

Two internal trading incidents within a year highlight the challenge of internal risk control at exchanges

In March this year, a Binance employee, Freddie Ng (former BNB Chain business developer, later joined Binance Wallet team), obtained early knowledge of the upcoming rise of UUU tokens and allegedly traded based on insider information. Using his personal wallet (0xEDb0…), he purchased about $312,000 worth of UUU tokens with 10 BNB, then transferred all tokens to a money laundering wallet (0x44a…).

When the token price was high, he sold the initial batch through Bitget wallet, making a profit of 181.4 BNB, equivalent to about $110,000. The remaining UUU tokens were split across eight different addresses, each worth a few thousand dollars. However, the investigation revealed that the funds in his personal wallet originated 121 days prior from his real-name wallet freddieng.bnb (0x77C…), ultimately exposing his involvement.

After Binance’s investigation, the employee was suspended and handed over for legal proceedings, and the whistleblower received a $10,000 reward. These two incidents, separated by only nine months, underscore the internal control challenges Binance faces.

But Binance is not the only exchange with internal control issues. In 2022, U.S. authorities accused a former Coinbase product manager and two accomplices of trading at least 25 assets before their official listing, profiting illegally over $1 million using insider information.

Additionally, last week, several Coinbase shareholders filed a lawsuit in Delaware court, accusing CEO Brian Armstrong and director Marc Andreessen of leading cover-up actions and personally profiting from stock sales.

Shareholders claim that Coinbase’s leadership knowingly concealed serious issues within the company, causing the stock to be artificially inflated. In early 2023, Coinbase reached a $100 million settlement with New York State Department of Financial Services over KYC and AML procedural flaws. Senior executives are accused of being aware of the issues during the investigation but issuing misleading statements claiming compliance.

Furthermore, insiders were aware as early as January this year of a severe data breach where hackers obtained sensitive customer data through third-party vendors, but the information was not disclosed until May—delaying disclosure for several months, exposing shareholders and investors to risk. During this concealment period, top executives sold approximately $4.2 billion worth of Coinbase stock at high prices, with plaintiffs alleging that misleading statements and information concealment directly caused the stock’s inflated value, allowing insiders to reap huge profits and potentially avoiding billions in losses.

Besides Binance and Coinbase, OKX has recently also revealed an internal anti-corruption case. According to a post by @BroLeonAus, a certain account made an unusual purchase of a token before an official announcement. The account rarely traded altcoins but suddenly bought before positive news was released and sold quickly afterward, netting only a 10% profit, about $2,000. An internal investigation initially found no clues, but months later, through internal transfers between this insider account and a senior staff member’s account, it was discovered that the account belonged to the employee’s wife, leading OKX to dismiss the employee.

In this case, if the employee’s wife performed the on-chain operation or if no internal transfers later exposed the account, this case might have remained forever hidden.

This indicates that only a small fraction of insider trading cases are ever exposed. No matter how exchanges promote their policies, the inherent features of blockchain technology make it easier for insiders to exploit loopholes.

While on-chain data is public, who can identify which addresses belong to exchange employees or related parties among the vast number of addresses? Under regulatory vacuum, exchanges act as rule-makers, enforcers, and beneficiaries simultaneously. This power structure itself seeds systemic risks. The so-called zero-tolerance policy and bounty reporting mechanisms seem more like PR crisis management cover-ups, often arriving late when incidents are exposed, and many undiscovered cases may represent a much larger iceberg beneath the surface.