> the allegedly “protected” parties in this case would still be able to trade with Binance if Binance were licensed

Correct. Except those parties would have their own risk disclosure obligations which the CFTC could check.

It’s easy to hide leverage in swaps. They also uniquely accumulate counterparty risk, since the standard way to close out a swap isn’t to cancel the original swap, but to enter into a new, counter-balancing one. This means even a minor party failing can lead to systemic risk as positions their counterparties assumed were hedged are now levered and open. Add in opaqueness, and any swap participant going under leads to legitimate concerns about everyone else. This happened in 2008. The rules Binance helped institutions evade are the ones that were written to prevent that form of crisis re-emerging.