Binance Coin (BNB/USD) has sustained its bullish trend amid reports by Bloomberg that the Binance exchange mistakenly mixed client funds with Binance-peg tokens (B-Tokens) collateral. At press time, the BNB token was up by 3.34% in the past 24 hours to trade at $313.24.
According to the report, Binance mistakenly kept B-Token collateral in the same wallet it uses to store funds belonging to its customers.
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Binance-peg tokens (B-Tokens)
Binance issues 94 B-Tokens and stores the reserves of half these tokens in a cold wallet referred to as Binance 8. But apparently, the wallet contains more tokens than required since the B-Tokens are backed in a ratio of 1:1. The excess point to the fact that the collateral supposed to be stored in the wallet is being mixed with customer funds.
According to the source that disclosed the information to Bloomberg:
“Collateral assets have previously been moved into this wallet in error and referenced accordingly on the B-Token Proof of Collateral page. Binance is aware of this mistake and is in the process of transferring these assets to dedicated collateral wallets. Assets held with the exchange have been and continue to be backed 1:1.”
Does Binance segregate customer funds?
According to Laurent Kssis, a CEC Capital adviser:
“In essence this means that there is no segregation of assets between clients’ funds and any collateral use. This could lead to the owner(s) not being able to withdraw due to lack of funds or liquidity by the exchange… This could resonate like what FTX and Alameda did on a daily basis. An audit would generally highlight such shortcomings and ask to remedy it immediately. If Binance was regulated this would be an essential part of their internal controls.”
Binance has faced criticism for the collapse of FTX with a majority pointing fingers at its decision to sell its FTT token holding, which is seen as the main catalyst for the collapse of the FTX exchange. Binance has since sort to boost customer confidence by releasing a proof-of-reserves report which showed that its bitcoin (BTC/USD) reserves are over-collateralized.