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Binance Mixes Customer Funds and Collateral in Same Wallet by Mistake

Giant cryptocurrency exchange Binance has allegedly admitted to storing some customer funds in the same wallet as collateral for certain in-house tokens, known as B-Tokens.

After discovering this error, the company began the process of moving the affected assets to separate collateral wallets, according to a report by Bloomberg on January 24th.

The company also provided proof of collateral for all 94 B-Tokens that it has issued, reasserting that these tokens are always fully backed and collateralized.

Binance’s proof of collateral revealed that nearly half of all B-Tokens’ reserves are stored in a single wallet, named “Binance 8“, according to Cointelegraph.

This wallet reportedly holds more tokens than the amount required for the B-Tokens that the company has issued, indicating that the exchange may have mixed customer funds with the collateral rather than keeping them separate.

This type of wallet management system would appear to be in violation of Binance’s own guidelines for managing wallets.

Binance’s proof of reserve page shows that the company’s own holdings are kept in separate accounts and are not included in the calculations for proof of reserves.

A spokesperson for Binance said, “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.”

“Binance is aware of this mistake and is in the process of transferring these assets to dedicated collateral wallets,” they added.

The representative also noted that Binance 8 is an exchange cold wallet, adding that collateral assets have been previously moved into this wallet in error.

It is worth noting that Binance introduced a proof of reserve process in November to increase public trust in the wake of the FTX crypto exchange’s failure.

The exchange later partnered with accounting firm Mazars to conduct official audits of its proof of reserves.

Mazars confirmed that Binance’s Bitcoin holdings were fully collateralized, but then removed the audits from its website without explanation.

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