Binance introduces system to prevent collateral mismatch

Binance is introducing a new system to fine-tune the mixing of B-TOKEN collateral with customer funds.

Binance has launched a semi-automated process to give better insight into the reserves backing each crypto asset, following recent revelations that the exchange had collateral backing the mining of its Binance-PEG tokens mixed with customer funds. Is.

New Binance System Still Needs Trust, Analysts Say

Binance creates a pegged token, or B-token, of the deposit cryptocurrency that is usable on its proprietary blockchain. For example, it creates one ETH B-token for every ETH deposited. However, each B-Token must be held in a collateralized wallet backed by ETH.

The new semi-automated system will allow mining of new B-Tokens only when the associated collateral wallets have the necessary reserves of crypto assets. This will retain some degree of manual operation to enable Binance to intervene in the event of a security breach.

It still gives them the ability to hit the switch in the worst-case scenario and save a bit of face,” said Conor Ryder, a research analyst. “But this is not a perfect fully-automated system, and we have seen before that Binance has mismanaged the mining process going on here.”

According to a company spokesperson, the collateral will be visible on-chain to improve transparency.

Previously, Binance mistakenly mixed collateralized assets with customer assets in the now infamous Binance 8 wallet, resulting in some B-tokens appearing highly collateralized. According to the spokesperson, the new automation element will also help the exchange in risk management.

Most recently, it announced that it would introduce zero-knowledge proofs to improve the privacy of its next proof-of-reserve report. Zero-knowledge proofs confirm the truth of a statement without specifying how the truth was confirmed. In the case of Binance, this will confirm changes to customer asset balances through changes to the Merkle root hash of Binance’s Merkle tree.

BUSD Depegs As Exchange Burns $2B Worth

Earlier today, the Binance-branded BUSD stablecoin dropped as low as $0.20 against the algorithmic stablecoin DAI due to slippage caused by a large sell order. Seeing an arbitrage opportunity, traders quickly brought BUSD back to their dollar peg.

Stablecoins have been at the center of recent regulatory actions by the New York Department of Financial Services and the US Securities and Exchange Commission. The NYFSD recently ordered Paxos, the issuer of BUSD, to stop minting the coin and terminate its relationship with Binance. At the same time, the SEC sent a Wells Notice warning the issuer that BUSD may be an unregistered security.

Yesterday, Paxos confirmed that it has ended its relationship with Binance. Neither the exchange nor its CEO Changpeng Zhao has publicly responded to the termination.

The exchange announced today that it will stake $2 billion in BUSD and issue an equal amount of ETH collateral.

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BeInCrypto has reached out to the company or the person involved in the story for an official statement regarding the recent development, but has yet to hear back.

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