After the fall of FTX, crypto entities, including the Binance exchange, stepped up to offer advice. They urged crypto businesses to stop making certain mistakes like storing all their funds together. The entities advised to save customer funds in a different account than the reserve tokens. Despite everything, the largest crypto exchange in the world did not respect the rule.
After confession, Binance announces that it is working to correct its mistake
Binance, the exchange set to offer Web3 scholarships, recently made an admission. CZ’s company admitted to making a serious rookie mistake by storing two types of funds together. Bloomberg reported this information in an article this January 24, 2023. It appears that the exchange has stored its reserve tokens B-Tokens and customer funds on the same wallet. But, Binance said this is a mistake it made unintentionally.
This Monday, Binance released a reserve proof for B-Tokens. The document provided several information for the 94 tokens that the exchange issued. It should be noted that the company had ensured that all these tokens benefit from a full 1:1 guarantee. It appears that nearly 50% of the reserves in B-Tokens are on a single portfolio called “Binance 8“.
The wallet therefore contained many more tokens in reserve than what should be. This suggested that Binance would store reserve tokens with client cryptos. Yet he had to store these two asset classes separately.
The crypto exchange admitted its mistake. He claimed to have stored some user funds in the same place as some internal tokens, without realizing it. Then, he started the necessary process to transfer the B-Tokens to dedicated reserve wallets.
The wallet management system described here does not meet Binance’s wallet guidelines. Indeed, the exchange had stated:When a user deposits one bitcoin, Binance’s reserves increase by at least one bitcoin to ensure customer funds are fully collateralized. Importantly, this does not include holdings of Binance companies, which are kept on a completely separate ledger.“. That said, this event could perhaps make investors more wary.
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