The world’s largest cryptocurrency exchange, Binance, has established a new process to ensure greater transparency in its operations, as reported by Bloomberg on February 22nd.
This move comes after Binance was found to have mistakenly kept collateral for over 40 of its Binance-peg tokens in a single wallet that also contained customer funds last month.
Additionally, the reserves for a major stablecoin were not properly documented, leading to gaps of up to $1 billion in externally visible funds between 2020 and 2021.
However, according to a spokesperson for Binance, the exchange has now implemented a partially-automated system that ensures B-Tokens are always transparently backed.
This system only allows the minting of new coins to occur once the appropriate collateral has been added to the corresponding wallet. Furthermore, reserves have been distributed across 36 dedicated collateral wallets.
The spokesperson claimed that in the past few weeks, collateralized assets had been transferred to separate wallets for each network to ensure clear visibility of the 1:1 backing.
Additionally, the spokesperson clarified that the collateral has always supported users’ B-token assets and can be withdrawn anytime. The assets will now be displayed on-chain in dedicated wallets and remain there until needed.
Binance Mints Own Versions Of Third-Party Tokens
Binance has developed a method to make certain digital tokens compatible with different blockchain networks. To achieve this, it creates its own versions of tokens like Ether, USDC, and USDT and locks up an equal amount of collateral in a separate wallet before minting new tokens on the user’s desired network.
However, a previous mixing of over $539 million in B-Tokens and customer funds in an exchange wallet resulted in some tokens being significantly overbacked.
The exchange has since implemented a semi-automated system to manage reserves and reduce security risks, although some tokens may still be slightly overcollateralized to prevent unexpected spikes in demand.
While this system allows for quicker intervention in case of hacks or incidents, some experts suggest a fully automated process would be ideal to ensure trust in Binance’s management of reserves.
Nevertheless, Binance’s move to a semi-automated process for token reserves management is a necessary step towards increased transparency and security.
While the exchange’s past mismanagement of reserves is a cause for concern, the new system will hopefully reduce the risk of such incidents happening again.
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