Illustrated by Aida Amer/Axios
Binance, the world’s largest cryptocurrency exchange, is putting its coins out of wallets, keeping them alongside other coins that don’t belong there, and the specter of company and customer assets mingling together. It’s causing
Big picture: Binance and its founder Changpeng “CZ” Zhao emphasized the importance of transparency and trust in the wake of FTX’s demise, where asset mix appeared to play a role.
what’s happening: Binance’s “8 Wallet” has been marked as a reserve to hold collateral for derivative tokens used on Binance’s native blockchain.
- As first reported by analysts and Bloomberg, the wallet held more than it needed to in its collateral, hence the commingling suggested.
What they say: A Binance spokesperson likened the incident to a “clerical error” and denied “mixing” in a statement emailed to Axios.
- “Binance is aware of this mistake and is in the process of transferring these assets to a dedicated collateral wallet, which will appear on-chain and will be reflected on the collateral proof page soon.”
- “For clarity, all user assets held on Binance are and will continue to be backed 1:1 despite these historical operational oversights.” said the spokesperson.
in the meantime: Binance told Decrypt that the discrepancies occurred because the funds were “not moved quickly enough to the appropriate hot wallet” or “collateral assets were stored in cold wallets that were not known to the public.” rice field.
- The company’s stated policy does not allow mixing.
Line spacing: Binance lists a total of $3.8 billion in B token collateral in its wallet, but the wallet in question actually holds about $16.5 billion in funds, crypto intelligence platform Arkham told Axios. .
- Our Thought Bubble: That’s a $12.7 billion difference, a big mistake.
detail: There are 94 B tokens that are mints of the exchange, bitcoin to zcash derivatives, and Binance holds the assets backing them according to a one-to-one pledge.
- They are wrapped tokens. Do not confuse with BNB coin. BNB coin was originally issued as a gas token to pay transaction fees.
- Around 40 of these tokens’ collateral are listed using the Binance 8 wallet.
- Binance’s Proof of Collateral page shows oversized collateral, in some cases several times.
Flashback: Binance attempted a Proof of Reserves Report (POR) in November, but its auditor, Mazars, simply took down the website and stopped crypto auditing services.
note: Mazars didn’t suggest there was a problem with Binance’s book, but said he was staying away from working on POR reports for all cryptocurrency clients.
- It cites concerns about how the public understands them, and agrees with growing criticism of what such reports do. No please tell me.
- One of these criticisms is the general inability of auditors to prove the validity of a client’s financial information.
To the point: Recent examples show that it is the misappropriation of funds, not necessarily commingling, that brings cryptocurrency platforms to their knees. For Binance, so far, there is no evidence of that.