According to a recent website listing, the asset balance in Binance’s “Binance 8” wallet exceeds the number of digital assets it has issued on BNB Smart Chain and BNB Beacon Chain, meaning that part of the asset balance likely belongs to customers.
Binance Mixes $1.3 Billion of Customer Assets With B-Tokens
Binance mints B-Tokens of multiple crypto assets like Bitcoin, Ether, USDC, and Tether, for their use on other blockchains. According to Bloomberg , the exchange must keep reserves of the original tokens represented by their B-Token equivalents in distinct customer wallets.
The exchange acknowledged the commingling of funds and said it will move the B-Tokens to a collateral asset wallet. The Binance 8 wallet has about $1.3 billion in customer assets. Until the funds are separated, customers cannot be sure that Binance will honor redemption requests 1:1.
The exchange’s reputation has been under scrutiny after reports surfaced that Binance moved almost $350 million for Russian exchange Bitzlato. This latest association with money laundering has fueled speculation that Binance’s measures to combat it have been exaggerated.
Crypto Industry Learns Importance of Accountability the Hard Way
The discovery of Binance’s error highlights the importance of customer due diligence when choosing a centralized exchange.
FTX’s former CEO Sam Bankman-Fried faces charges of commingling FTX customer funds with Alameda Research to boost the hedge fund’s solvency. FTX customers deposited funds onto FTX through Alameda’s account with Silvergate. The Silvergate Exchange Network links the bank accounts of crypto investors with exchanges.
Binance recently released a Merkle Proof-of-Reserves report to attest to its collateral holdings of Bitcoin needed to honor customer withdrawals. It had unsuccessfully tried to enlist one of the big four accounting firms, Deloitte, EY, PricewaterhouseCoopers(PwC), or KPMG for its audit.
Crypto and accounting professionals, including former Kraken CEO Jesse Powell, criticized the report, eventually released by non-big-four accounting firm Mazars. Proof-of-Reserves without insight to the exchange’s liabilities and internal financial controls means little , experts say .
Another misleading “PoR” AUP (not an audit) released today. Apparently, there is no consistent process used across exchanges. Again, the process strays far from the original spec. License.