The company has moved to a “semi-automated” process to manage the reserves that back the tokens it issues. At the end of January, it was discovered that Binance was storing token collateral with user funds in the same wallet.
Bloomberg reported that the company mistakenly stored collateral for nearly half of its 94 Binance-peg tokens (B-tokens) in a single $16 billion wallet that also held client funds.
February 23, Bloomberg declared that Binance has now implemented a partially automated process that ensures B tokens are “always backed up transparently.” This is achieved through a system that “only allows new coins to be minted after collateral has been added to the appropriate wallet,” he added.
Binance moves to a ‘semi-automated’ system to oversee the reserves that back the tokens it issues, after years of mismanagement
—Bloomberg Crypto (@crypto) February 22, 2023
Binance B Token Transparency
A Binance spokesperson told the outlet that the exchange has moved collateralized assets to dedicated wallets over the past few weeks. There is one for each network, which shows the 1:1 support of each asset. They added:
“This collateral has always backed our users’ B-token assets and has always been available for withdrawal at any time. We now just show it on chain in dedicated wallets where it will stay until needed.
The move could be a public relations exercise aimed at increasing reserve transparency amid a regulatory crackdown on centralized exchanges.
The semi-automated system could allow Binance to intervene if an incident were to impact B token reserves, Bloomberg speculated.
Research analyst at blockchain data firm Kaiko, Conor Ryder, said it always gave them the option to flip the switch, should the worst come to the worst before adding:
“But it’s not an ideal fully automated system and we’ve seen before that Binance has mishandled the kind of minting process that’s going on here,”
He concluded that a fully automated process just to make sure it doesn’t happen again would be ideal. “There is still potentially an element of trust that needs to be placed in Binance and its management of those reserves,” he said.
Implementation of zk proofs
On February 10, Binance improved its proof of reserves system by implementing zero-knowledge proofs in the form of zk-SNARK.
It allows users to verify that the total net balance of each account is non-negative. This also shows that all user assets are part of the total net balance claimed by Binance.
Zk proofs are a cryptographic method to prove the validity of a statement or data without revealing the data or the statement itself.
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