Binance has admitted not keeping customers’ funds and the platform’s separate, according to Bloomberg report. The cryptocurrency exchange have “mistakenly” mixed some of its Binance-peg tokens (B-Tokens) with customers’ funds into one specific wallet – Binance 8.
“‘Binance 8’ is an exchange cold wallet. Collateral assets have previously been moved into this wallet in error and referenced accordingly on the B-Token Proof of Collateral page,” a Binance spokesperson quoted by Bloomberg News.
Binance Was Playing Fast and Loose
Faced with crisis of confidence following FTX’s collapse in November last year, Binance has since published its wallet addresses and details of its current holdings in efforts to reassure the public about the exchange’s transparency. The exchange recently shared information about all B-tokens.
Binance’s Proof-of-Reserve page previously indicated that Binance’s corporate holdings were kept in separate ledger and also backed one-by-one.
However, a number of those B-tokens, which are supposed to be in different wallet, are reportedly stored in Binance 8, a wallet that Binance uses to store customer assets.
According to the source, more than 40 B-tokens including Polygon’s MATIC, MakerDAO’s DAI, MKR, Aave have used Binance 8 to store their reserves, totaling up to $539 million and accounting for nearly 30% of Binance’s holdings.
Binance’s spokesperson reassured that the exchange “is aware of this mistake” and working on fixing the issue.
Customer funds are somewhat sensitive discussion. Since the collapse of FTX, the community has kept a watchful eye on how and where an exchange stores customer funds.
Sam Bankman-Fried, FTX’s former CEO, was previously accused of opening a back door that allowed Alameda Research, FTX’s sister trading firm, to make use of customers’ assets.
Some blockchain experts pointed out abnormally excessive overcollateralization linked to Binance 8, suggesting a mix of exchange and customer funds.
Binance affirmed using Binance 8 to store customers’ funds, however, it looks liked that the wallet was also listed as reserves wallet for Binance-backed tokens.
Since the resounding explosion of FTX, prominent crypto exchanges have been under severe pressure. A minor blunder can quickly escalate into panic, as we saw in 2022 as a result of a domino effect.
In December of last year, Binance was confronted with a slew of negative news and media allegations, which shook customers’ trust. As a result, a large amount of money flooded out of Binance, forcing the exchange to halt withdrawals of stablecoin USDC.
According to Coindesk data, approximately $902 million was withdrawn from Binance within 24 hours. This is the second largest withdrawal in the crypto market since FTX went bankrupt, and the largest in Binance history in the last five years. It was estimated that as a result of the FUD, users withdrew up to $12 billion.
Binance’s stablecoin BUSD experienced a sell-off on the same day. A significant amount of BUSD was swapped to other stablecoins such as USDC and USDT, causing its value to fall from the 1:1 USD anchor.
Binance also faced rumors that that it was the subject of an anti-money laundering investigation by a US watchdog.
The news immediately reintroduced volatility. While Binance CEO CZ claimed the information was incorrect, he was unable to provide any clear evidence to back up his claim. According to other Wall Street Journal reports, Binance’s reserve asset information was also suspect.
Binance was also discovered to have many suspicious signs related to the listing of new token.
Rumors of insider trading stirred when a wallet address was discovered to have repeatedly bought and sold tokens that were supposed to be opened for trading on the exchange.
Furthermore, the exchange admitted that there was a problem with securitizing stablecoin BUSD in the past, but that it had been resolved.