Binance Mistakenly Mixed Crypto Exchange’s Customer Funds With B-Token Collateral: Bloomberg

Binance, the world’s largest crypto exchange by trading volume, improperly held security for some of the crypto assets it issues in the same wallet as funds belonging to customers, Bloomberg reported Tuesday, citing an unidentified Binance spokesperson.

The exchange issued 94 so-called Binance peg tokens (B-Tokens), and reserves for nearly half of these are stored in a cold wallet called Binance 8, Bloomberg said. The wallet contains more tokens than required for the number of issued B tokens. Since the tokens are meant to be backed 1:1, the excess indicates that the security is being commingled with customers’ tokens, according to Bloomberg.

“Collateral assets have previously been moved into this wallet by mistake and referenced accordingly on the B-Token Proof of Collateral page,” the spokesperson told Bloomberg. “Binance is aware of this error and is in the process of transferring these assets to dedicated security wallets.” Assets held with the exchange “have been and continue to be backed 1:1,” the spokesperson said.

When collateral is pooled and used for trading, it is locked in and clients or asset holders may not be able to withdraw if the pool is reduced, Laurent Kssis, a crypto trading advisor at CEC Capital, said in a note to CoinDesk.

“Essentially, this means there is no segregation of assets between clients’ funds and any collateral used,” Kssis said. “This may result in the owner(s) not being able to withdraw due to a lack of funds or liquidity at the stock exchange.

“This could echo what FTX and Alameda did on a daily basis. An audit would generally highlight such deficiencies and ask to correct them immediately, he said. “If Binance was regulated, this would be an important part of their internal control. “

Binance has faced scrutiny since the collapse of crypto exchange FTX and FTX’s associated hedge fund Alameda Research. As a result, Binance sought to boost confidence in its platform by releasing a “proof-of-reserves” report from accounting firm Mazars in December. The report showed that Binance’s customer bitcoin (BTC) reserves were oversecured.

“To be clear, Binance holds all of its clients’ assets in segregated accounts, which are identified separately from any accounts used to hold assets belonging to Binance,” a Binance spokesperson said in an email. “Binance does not invest or distribute user resources without consent in accordance with the terms of specific products.”

UPDATE (January 24, 16:22 UTC): Adding Binance comment in last paragraph.