Binance keeps token collateral and user assets in the same wallet


Binance previously said that the company’s corporate assets are maintained in separate accounts and should not be included in the calculations for proof-of-reserves.

Reportedly, Binance has confessed that it keeps certain client assets in the same wallet as collateral for some of its own tokens. Following the disclosure, Binance initiated the transfer of the assets in issue to collateral wallets.

Bloomberg reported on January 24 that Binance placed collateral for certain Binance-minted tokens, or B-Tokens, in a wallet that also stores client funds.

On Monday, Binance published a proof of collateral for B-Tokens, detailing every 94 tokens issued by the exchange. Previously, the company emphasised that B-Tokens are always 100% collateralized and backed 1:1.

According to the proof of collateral, Binance reserves for about fifty percent of all B-Tokens are now housed in a single wallet dubbed “Binance 8.” The reserve tokens held by the wallet are much more than the number of B-Tokens that Binance has released. This purportedly indicates that Binance combined customer collateral with client currency instead of holding them separately.

Even if the issue solely pertains to B-Tokens, such a wallet management system seems to violate Binance’s wallet standards.

Binance’s proof of reserve (POR) website indicates that the exchanges’ corporate assets are maintained in separate accounts and do not factor into proof-of-reserves calculations. Binance announced:

“When a customer deposits one Bitcoin, Binance increases its reserves by at least one Bitcoin to guarantee that client funds are completely supported. Not included are Binance’s business interests, which are recorded in an entirely different ledger.”

According to Bloomberg, Binance has confirmed that it mistakenly keeps B-tokens among its own reserves and is attempting to resolve the problem as quickly as possible.

A spokeswoman for Binance allegedly said, “Binance is aware of this error and is in the process of moving these assets to designated collateral wallets.” In addition, the agent said that Binance 8 is an exchange cold wallet and that collateral assets were previously transferred into this wallet by mistake.

Binance did not immediately react to a request for comment from Cointelegraph. In the wake of the collapse of the FTX cryptocurrency exchange, Binance started a PoR mechanism in late November, as previously reported. The exchange secured a collaboration with the accounting firm Mazars as its official PoR auditor by early December.

Mazars pulled Binance’s POR audits from its website without explanation shortly after verifying that Binance’s Bitcoin was completely collateralized.

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