Binance Mistakenly Mixed Crypto Exchange's Client Funds With B-Token Collateral: Bloomberg
Binance, the world’s largest crypto exchange by trading volume, mistakenly kept collateral for some of the crypto assets it issues in the same wallet as funds belonging to its customers, Bloomberg reported, citing an unidentified Binance spokesperson.
The exchange issues 94 so-called Binance-peg tokens (B-Tokens), and reserves for almost half are stored in a cold wallet called Binance 8, Bloomberg said. The wallet contains more tokens than required for the amount of B-Tokens issued. Since the tokens are supposed to be backed 1:1, the excess indicates the collateral is being mixed with customers’ tokens, according to Bloomberg.
“Collateral assets have previously been moved into this wallet in error and referenced accordingly on the B-Token Proof of Collateral page,” the spokesperson told Bloomberg. “Binance is aware of this mistake and is in the process of transferring these assets to dedicated collateral wallets.” Assets held with the exchange “have been and continue to be backed 1:1,” the spokesperson said.
When collateral is pooled together and used for trading, it’s locked up and clients or holders of assets may not be able to withdraw if the pool is reduced, Laurent Kssis, a crypto trading adviser at CEC Capital, said in a note to CoinDesk.
“In essence this means that there is no segregation of assets between clients' funds and any collateral used,” Kssis said. “This could lead to the owner(s) not being able to withdraw due to lack of funds or liquidity by the exchange.”
“This could resonate like what FTX and Alameda did on a daily basis. An audit would generally highlight such shortcomings and ask to remedy it immediately,” he said. “If Binance was regulated this would be an essential part of their internal controls.”
Binance has faced scrutiny following the collapse of crypto exchange FTX. The exchange sought to boost confidence through its “proof of reserves” report from accounting firm Mazars in December. The report showed that Binance's customer bitcoin reserves are overcollateralized.