Binance allegedly held collateral tokens with users’ funds according to a recent report released by Bloomberg. Apparently, Binance knows about the situation and they will be working in order to correct this issue. Binance is the largest cryptocurrency exchange in the world and token management has clearly an impact on users, especially from a risk standpoint.
Binance Mixes Collateral Tokens with Users’ Funds
Binance, the most popular cryptocurrency exchange in the world, held collateral tokens alongside users’ funds, as reported by Bloomberg. The funds were held in the same wallet as the company used to protect clients’ digital currencies.
The cryptocurrency exchange acknowledged the issue and they are working in order to transfer these assets to collateral wallets. This would help the platform solve its accounting problem.
A Binance spokesperson commented about this situation:
“Binance 8’ is an exchange cold wallet. 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.”
The main issue is that this not only creates an accounting problem, but it also increases the risk for users and the company. At a moment in which regulators are starting to pay closer attention to cryptocurrencies and companies working in this industry, these types of errors could be very costly.
Changpeng Zhao, the CEO of Binance, did not mention anything on Twitter about what happened with the exchange and the confusion with the tokens that were held in the wrong wallet. However, he has been on Twitter doing multiple “AMA” Spaces answering questions from the community. It might be possible to see some comments related to this issue in the future.
It is worth pointing out that this has also an impact on how users and clients see the way in which Binance handles and manages their funds. Other exchanges have also been affected by similar accounting issues in the past, for example, Crypto.com and Gate.io have been involved in accusations related to faking their own reserves.
This scrutiny on exchanges became particularly intense when the FTX cryptocurrency exchange collapsed in November 2022. Users started to pay close attention to how crypto exchanges protect users’ funds and how they protect clients’ digital currencies.
According to data shared by CoinGecko, Binance Coin (BNB), the digital asset of the Binance crypto exchange, registered moderate gains in the last 7 days. The coin surged by almost 4% during the last week and it also grew by 1.2% in the last 24 hours. Therefore, it seems that there was no negative impact on the price of Binance Coin despite the current issue that the exchange faced with the collateral coins held with users’ funds.
Regulators will have to look at these issues more carefully and take a decision on which aspects will have to be regulated in the market when it comes to exchanges and crypto funds held at trading platforms.