The world’s largest cryptocurrency exchange, Binance, mistakenly kept its collateral crypto assets within the same wallet that held customer funds.
A Bloomberg report revealed Binance issued 94 ‘B-Tokens’ as well as reserves in a cold wallet known as Binance 8, which reportedly holds more B-Tokens than required.
This indicates that because the B-Tokens are meant to be backed 1:1, the exceeding limit had been mixed with its customer tokens within the same wallet. This in turn creates confusion for investors as to whether the exchange’s reserves are sufficient enough.
A source close to the story told Bloomberg: “Binance is aware of this mistake and is in the process of transferring these assets to dedicated collateral wallets, and have been and continue to be backed 1:1.
“Collateral assets have previously been moved into this wallet in error and referenced accordingly on the B-Token Proof of Collateral page.”
The spotlight on crypto exchanges has never been more intense following the collapse of FTX, with proof of reserves becoming a main talking point within the industry.
Crypto analysts believe that mixing investor assets and collateral reserves can lead to individuals being unable to withdraw their holdings, a result of a lack of liquidity from the exchange – this is, in essence, what led to FTX’s downfall.
In the fallout of the aforementioned downfall, Binance and many other exchanges were under the spotlight to question how stable their proof of reserves were. In an attempt to be as transparent as possible, Binance launched a ‘proof of reserves report’ which revealed the firm’s customer Bitcoin holdings were over collateralised.
“To be clear, Binance holds all of its clients’ assets in segregated accounts, which are identified separately from any accounts used to hold assets belonging to Binance,” a Binance spokesperson said.
Bloomberg also reported early January that Binance-Peg BUSD reserves were missing up to $1 billion at three different times.