Binance admitted it keeps collateral for its BNB Smart Chain and BNB Beacon Chain versions of 94 crypto assets in the same wallet, amid uncertainty surrounding its recent audit of customer funds.
According to a recent website listing, the asset balance in Binance’s “Binance 8” wallet exceeds the number of digital assets issued on the BNB Smart Chain and the BNB Beacon Chain, meaning that part of the asset balance could potentially go to customers. Of
Binance Combines $1.3 Billion Of Customer Assets With B-Token
Binance mines B-Tokens of several crypto assets such as Bitcoin, Ether, USDC and Tether for their use on other blockchains. According to Bloomberg, exchanges must hold reserves of native tokens represented by their B-token counterparts in separate customer wallets.
The exchange accepted the mixing of funds and said it would move B-tokens to collateral asset wallets. Binance has 8 wallets with approximately $1.3 billion in customer assets. Until funds are segregated, clients cannot be sure that Binance will honor 1:1 redemption requests.
The exchange’s reputation has come under scrutiny after reports surfaced that Binance moved nearly $350 million to Russian exchange Bitzlato. This latest association with money laundering has fueled speculation that Binance’s measures to combat it have been exaggerated.
Crypto Industry Learns The Hard Way The Importance Of Accountability
Binance’s discovery of the error highlights the importance of customer due diligence when choosing a centralized exchange.
Former FTX CEO Sam Bankman-Fried is accused of mixing FTX client funds with Alameda Research in order to boost the hedge fund’s solvency. FTX customers deposited funds on FTX through Almeida’s account with Silvergate. The Silvergate exchange network links crypto investors’ bank accounts with exchanges.
Binance recently released a Merkle proof-of-reserves report to certify its collateral holding of bitcoins needed to honor customer withdrawals. It unsuccessfully tried to enlist one of the Big Four accounting firms, Deloitte, EY, PricewaterhouseCoopers (PwC), or KPMG, for its audit.
Crypto and accounting professionals, including Jesse Powell, the former CEO of Kraken, criticized the report, ultimately released by non-Big-Four accounting firm Mazar. Experts say proof-of-reserves mean nothing without information about the exchange’s liabilities and internal financial controls.
Mazars shut down its proof-of-reserve operations shortly after an “independent audit” by Binance, raising further questions about customer assurance.
Proof-of-reserve limits painfully clear, says PwC report
PwC recently assessed whether the proof-of-reserves report makes any meaningful contribution to customer confidence.
It concluded that since PoR reports reflect the exchange’s assets at a specific point in time, they provide no insight into the firm’s internal processes and controls and history of handling client assets. These insights are only available through SOC 1 or ISAE 3402 Type 2 reports from reputable auditors.
The SOC 1 report invites accounting firms to report claims by a company’s management that the firm has certain internal controls in place. On the other hand, ISAE 3402 Type 2 reports describe how internal controls have been managed over time.
The report stresses that only audited financial statements can allay fears of impending bankruptcy. It also highlights the need for industry-wide professional accounting standards to ensure clients know what they are getting. The standards also ensure that reports from different exchanges are comparable.
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