Quick Facts
- The exchange has announced that it is sorting out the issue.
- Experts are concerned that such mismanagement of funds could cause a liquidity problem.
Binance, the largest exchange by trading volume, is under pressure after a report emerged that the platform keeps customer funds in the same wallet as collateral for its issued tokens, Binance-peg tokens (B-Tokens.)
According to a report shared with Bloomberg by unidentified sources, there are more tokens than what is needed as collateral in the Binance 8 cold wallet reserves. Binance issued 94 B-Tokens that must be collateralized 1:1, and the remaining assets in the wallet show that the funds were mixed with customer deposits.
Binance has taken responsibility, saying it was in the process of correcting the error. ‘‘Binance is aware of this mistake and is in the process of transferring these assets into dedicated collateral wallets,’’ the spokesperson said, adding that the ‘‘collateral assets have previously been moved into this wallet in error and referenced accordingly on the B-Token Proof of Collateral page.’’
See Related: Binance’s Major Banking Partner Locks Out SWIFT Customers Transacting Less Than $100k
Experts Caution Binance’s Handling of Funds Could Cause a Liquidity Concern
Some of the risks cited by the industry experts are that such a mingling of funds can lead to a liquidity problem. According to CEC Capital’s trading adviser Laurent Kssis, when collateral is pooled and used for trading, it is fixed, and clients or holders of assets cannot redeem their funds if the amount in the pool drops.
The handling of the funding wallets by Binance has drawn comparison to the inadequate controls at FTX that led to its eventual collapse. Since the bankruptcy of the then one of the largest crypto exchanges, Binance has been under intense scrutiny because of its affiliation with the company. As a result, it had to release a proof of reserves report in December to boost public confidence.
