Binance Admits to Mixing-Up Users’ Exchange Funds with B-Collaterals

• Binance admitted to storing clients’ exchange funds with B-collateral funds together.
• The exchange’s spokesperson explained that collateral assets were moved into the wallet in error.
• Mixup was first identified by ChainArgos, a blockchain analytics firm.

Binance has acknowledged a mistake in its custodial service management. The leading cryptocurrency exchange has publicly admitted to storing clients’ exchange funds with B-collateral funds together, which is not supposed to be done.

According to reports, 94-peg tokens (B-Tokens) are issued by the exchange. The exchange’s storage structure is such that reserves for almost half are stored in a cold wallet referred to as Binance 8. It was observed that the wallet was over-bloated. It contained more tokens than was supposed, indicating a mixup with the excess being customers’ tokens.

A Binance spokesperson is reported to have confirmed this mixup. According to a report, the spokesperson explained that the collateral assets moved into the wallet happened in error.

Furthermore, he stated;

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.

This mixup was first identified by ChainArgos, a blockchain analytics firm on January 17, 2023. Jonathan Reiter, a co-founder at ChainArgos, raised the alarm over an obvious mixing of clients and peg-backing funds. He explained that this was a result of excessive over-collateralization of some B-tokens, and the use of the B 8 wallet by Binance.

As expected, the mixup has generated concerns in the crypto industry, raising questions over the guarantee of custodial management of customers’ funds.

In a report, Laurent Kssis, a crypto trading adviser at CEC Capital criticized the exchange for not segregating between clients’ funds and the collateral used. According to him, this could hinder the owners from making withdrawals due to a lack of funds or liquidity by the exchange. He notes that this connotes a hint of the problems at FTX and Alameda.

Kissis concluded that such issues could have been easily highlighted by deploying an auditing process. It will address any shortcomings and ask for immediate remedy.

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