- Binance began providing proof of reserve following FTX’s collapse to assure its users of its stability.
- A spokesperson said the exchange is working on moving the collaterals to a dedicated collateral wallet.
Binance, the leading cryptocurrency exchange, has admitted that its management of users’ funds has not always been perfect and noted that it “mistakenly” stored some company funds in the same wallet as its collateral for some in-house tokens known as B-tokens. These Binance-minted tokens allow users to trade cryptocurrencies such as Bitcoin and Ethereum on the BNB chain.
Speaking about the event, Binance reportedly told Decrypt that “on-chain data highlighted by third parties shows that the administration of hot wallets has not always been perfect.” The exchange recently released a proof of collateral for B-Tokens, offering details for all 94 tokens it issued.
The trading platform has previously claimed that B-tokens are backed 1:1 and are fully collateralized. However, the proof of collateral shows that Binance reserves about 50% of all B-tokens in a single wallet known as “Binance 8.”
The wallet appears to have a lot more tokens in reserve than is needed for the number of B-tokens issued by Binance, indicating that the exchange combined customer funds with collateral rather than storing them separately. A spokesperson said the exchange is aware of the recent mix and is working to transfer them to dedicated collateral wallets.
The new discovery casts a huge doubt on Binance’s wallet management system and seems to be against its publicized policies. The company’s proof of reserve page says that Binance’s corporate holdings are not included in the proof of reserve calculations and are recorded in different accounts.
According to Binance,
When a user deposits one Bitcoin, Binance’s reserves increase by at least one Bitcoin to ensure client funds are fully backed. It is important to note that this does not include Binance’s corporate holdings, which are kept on a completely separate ledger.
Following the dramatic collapse of FTX in November 2022, Binance has been providing regular proof-of-reserves reports to the public to reassure them of its stability. This strategy has been imitated by several other players in the industry, including Crypto.com and OKX. However, these reports have been heavily criticized.