Binance: Rebuilding Trust in Crypto

In 2022, the crypto industry experienced several damaging events that significantly weakened confidence in the digital asset ecosystem. Investors and stakeholders have been left frustrated by the fallout, which has ranged from centralized stock market failures to regulatory crackdowns.

In the wake of these challenges, many industry leaders are struggling to rebuild confidence in crypto. One entity taking bold steps towards this goal is leading crypto exchange Binance.

Binance believes that improving the trust and security of cryptoassets is essential to accelerate the mainstream adoption that the industry has long been working towards. The exchange strives to lead in this aspect, setting a clear example that other CEXs can follow.

As part of this transparency effort, Binance recently published a new policy document titled “Building Trust in the Crypto Ecosystem.” This policy document introduces guidelines that describe how industry players and users can work together to improve trust, safety and security in the crypto space.

The policy note is also accompanied by a separate Building Trust page, where anyone can see how Binance is implementing the new measures. The company has dedicated this page to everything related to trust and transparency. Below are some steps Binance has taken to promote trust and transparency.

Transparency about funds

The first main element in the policy note is the secure handling of customer funds. Binance believes that centralized exchanges need to adopt a new approach to transparency of user funds to rebuild user trust.

Binance has adopted various proof of reserves (PoR) systems using two of the most secure and transparent cryptographic tools, Merkle Tree and Zero-Knowledge Succinct Non-Interactive Argument of Knowledge (zk-SNARKs). This PoR system allows Binance users to verify their reserves while sensitive user information remains private.

Binance takes it further by revealing the wallet addresses with each PoR snapshot. This increases user confidence as they can see the reserves on the blockchain. To encourage the adoption of this PoR system, Binance has open sourced the underlying code to allow other exchanges to use it and improve their transparency.

Safety

Binance prioritizes the security of users’ assets and other sensitive user information obtained during the Know Your Customer (KYC) process. Therefore, the exchange uses some of the most robust encryption methods to keep these safe.

Binance stores the majority of user funds in cold storage. It also uses advanced security measures, including multi-signature and threshold signature schemes (TSS), to ensure the safety of users’ funds.

Børsen also believes that even the most secure systems can fail. As such, it created an emergency insurance fund that protects users in the event of a security breach. The Secure Asset Fund for Users (SAFU) currently has a balance of $1 billion.

Openness and transparency

Adequate transparency and disclosure are essential to foster trust in the crypto industry. Trading platforms must enable users to verify that their assets are safely held. Binance proposes to use proof of reserves (PoR) disclosures built with innovative transparency solutions such as zk-SNARKs and Merkel Tree – a technology that increases the efficiency and security of the blockchain by encoding data in a systematic order for easy verification.
Zero-Knowledge Succinct Non-Interactive Argument of Knowledge (zk-SNARKs) is a cryptographic proof that allows one to prove that it possesses certain information without revealing the information. Since zk-SNARKs cannot be fabricated or manipulated, users can verify the security of their assets on an exchange at any time.

Risk management

Effective risk management is critical to maintaining confidence in an industry as volatile as crypto. Many companies collapsed last year due to uncontrolled leverage positions, oversecured loans and insufficient protection funds.

Binance believes exchanges must ensure loans are adequately secured and avoid taking on debt to fund expansion plans to prevent such incidents in the future. They must also ensure that tokens pass rigorous vetting processes before listing to protect users from investing in low-credibility, high-risk projects, while educating users about how the crypto market works. More importantly, exchanges must have user protections as a safety net to protect users in cases of security exploits and extreme bear markets.

Security for users’ funds

Binance ensures that all user assets are backed 1:1 and protected by the highest wallet security standards. The platform has recently upgraded its third-party self-custody solution, Trust Wallet, to include additional security features that ensure the safekeeping of users’ assets.

The exchange also refrains from using the customers’ funds for other purposes without the consent of the users.

Proof of reserves

After the collapse of FTX, then the third largest CEX in the market, Binance’s efforts to increase trust and transparency in the crypto industry took a big step. The exchange published its first PoR disclosure, which relies on the Merkle Tree, in November 2022.

In February 2023, Binance updated its PoR disclosure with zk-SNARKs, which represents a significant improvement over the previous system. By disclosing its reserves, Binance allows its users to verify the security of their assets at any time. A further update in March 2023 shows that Binance’s PoR disclosure has been updated to allow verification of user assets for a total of 24 tokens.

Strict requirements for token entry

Before any token is listed on the Binance platform, the projects must meet strict requirements to determine their eligibility. This allows users to invest only in thoroughly reviewed projects.

Binance SAFU

Binance prioritizes the protection of users’ assets. Therefore, it has a SAFU fund (Secure Asset Fund for Users) that protects users in serious cases. Binance currently has around $1 billion in its SAFU.