Binance Crypto Exchange Admits To Mixing Client Funds With Collateral For Tokens Issued By Binance

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Source: Adobe Stock / photo_gonzo

Major crypto exchange Binance mistakenly held collateral for some of the crypto assets it issued in the same wallet as client funds, as reported by Bloomberg.

On Monday, Binance released a proof of collateral report for B-Tokens, which are the 94 tokens issued by Binance. The report, however, showed that the reserves of almost 50% of all these coins issued by Binance were at this point stored in a single wallet called “Binance 8”.

This wallet had significantly more tokens in reserve than required by the amount of B-Tokens, suggesting that the collateral was co-mingled with client funds instead of being stored separately.

The problem was found even earlier, on January 17, by DataFinnovation and ChainArgos co-founder Jonathan Reiter, who said excessive over-collateralization of certain B-Tokens and Binance’s use of the Binance 8 Wallet showed “an obvious mix of customer and peg-funds.”

Not having separate, dedicated wallets for clients and exchange funds goes against the exchange’s own guidelines.

According to Bloomberg, a spokesperson said:

“Binance 8′ is a cold exchange wallet. Collateral assets have already been moved into this wallet by mistake and referenced accordingly on the B-Token Proof of Collateral page.”

The person further stated that the assets held by the exchange “have been and continue to be backed 1:1” and that,

“Binance is aware of this error and is in the process of transferring these assets to dedicated collateral wallets.”

Bloomberg calculated (based on Binance data from January 20) that Binance has issued over $539 million out of the 41 B-Tokens that have Binance 8 as collateral wallet, while the wallet itself holds over 1 $.8 billion in related assets. Overall, Binance 8 holds over $16.5 billion in various crypto assets beyond B-Tokens.

Source: Bloomberg

Meanwhile, Binance was recently named in connection with another issue: On January 19, it was identified as a counterparty to little-known exchange Bitzlato, which faces money laundering charges in the United States. The US Treasury Department wrote in an order that Binance was Bitzlato’s primary bitcoin (BTC) receiving counterparty between May 2018 and September 2022.

Reuters reported on Jan. 24 that the exchange processed nearly $346 million in bitcoin for Bitzlato, citing data from blockchain research firm Chainalysis.

A Binance spokesperson, however, said it had “provided substantial assistance” to international law enforcement to support their investigation of Bitzlato.

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Read more: – Binance banking partner limits crypto transactions to $100,000 and above – Here’s why – Binance has cornered two-thirds of all crypto trading volume – What happened to decentralized finance?

– Binance CEO CZ Clarifies Reasons For Recent FUD Surrounding The Exchange – So He Said – Bankman-Fried Continues To Blame Binance For His Crypto Empire’s Collapse

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