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Binance admits to mistakenly holding user funds and token collateral in same wallet

Binance exchange has admitted to a mistake in storing some of its customer's funds in the same wallet as its collateral

Major cryptocurrency exchange Binance has made a mistake by storing some customer funds in the same wallet as its collateral for in-house tokens, known as B-Tokens. The company has now started to move these assets to dedicated collateral wallets.

According to Bloomberg, Binance provided information for all 94 tokens it issued by releasing a proof of collateral for B-Tokens.

Previously, Binance had said that B-Tokens are always fully collateralized and backed 1:1.

However, the proof of collateral showed that Binance reserves for almost 50% of all B-Tokens were stored in a single wallet, called “Binance 8”, which holds more tokens than required for the amount of B-Tokens issued.

This suggests that Binance mixed customer’s coins with its own collateral instead of storing them separately.

This type of wallet management system goes against Binance’s own guidelines. Binance’s proof of reserve (PoR) page states that the exchange’s corporate holdings are recorded in separate accounts and do not form part of the proof-of-reserves calculations.

Binance stated: “When a user deposits one Bitcoin, Binance’s reserves increase by at least one Bitcoin to ensure client funds are fully backed. It is important to note that this does not include Binance’s corporate holdings, which are kept on a completely separate ledger.”

A spokesperson for Binance said: “Binance is aware of this mistake and is in the process of transferring these assets to dedicated collateral wallets.”

The representative also said that Binance 8 is an exchange cold wallet and that collateral assets had been moved into this wallet in error.

This incident raises concerns about the transparency and security of Binance’s operations and the potential impact on its customers.

However, Binance’s quick action to transfer the assets to dedicated collateral wallets is a positive step, but it’s still uncertain if there will be any further issues.

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Roland is a Public Relations & Communications guru with an immense passion for the blockchain and crypto industry. A fusion of his expertise and passion led to the dawn of Optimisus in 2020.