Binance admits mistake of holding collateral tokens with user funds

Bloomberg

Binance Holdings Ltd., the world’s largest crypto platform, acknowledged that it mistakenly keeps collateral for some of the tokens it issues in the same wallet as exchange customer funds.
Reserves for almost half of the 94 coins that Binance issues, known as Binance-peg tokens or “B-Tokens” are currently stored in a single wallet called “Binance 8” which also holds customer assets, according to listings visible on its website.
That wallet contains significantly more tokens in reserve than would be required for the amount of B-Tokens that Binance has issued. This indicates that collateral is being mixed with customers’ coins rather than being stored separately, as has been done for other Binance-peg tokens according to the company’s own guidelines.
“‘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,” a Binance spokesperson said in a statement.
to Bloomberg News in response to questions on the matter. “Binance is aware of this mistake and is in the process of transferring these assets to dedicated collateral wallets.”
All user assets held with the exchange “have been and continue to be backed 1:1,” the spokesperson added, notwithstanding what Binance called “historical operational oversights.” Binance did not specify when the issue was identified.
Cryptocurrencies are often only compatible with the blockchain they were built on, meaning developers have had to figure out ways that allow them to use tokens like Bitcoin elsewhere. Binance mints billions of dollars’ worth of its own versions of third-party tokens like Ether, Circle’s USDC and Tether’s USDT to make them usable on other blockchains, such as the platform’s own BNB Smart Chain and BNB Beacon Chain.
Those B-Tokens are supposed to be backed one-to-one by locked reserves of the coins they’re based on, and reserves should be stored in dedicated wallets to keep them separate from customer and exchange funds, according to processes posted on Binance’s website. B-Tokens typically do not involve oversight or direct participation from the coins’ original creators.
More than 40 B-Tokens are listed as using Binance 8 to store their reserves — a type of address known as an exchange wallet, where platforms like Binance store customer assets. The wallet is listed as a reserve for Binance-peg versions of several major cryptocurrencies, including MakerDAO’s DAI and MKR coins, Aave, Uniswap’s UNI and Polygon’s MATIC.
The lack of segregation means that it’s difficult to verify how many coins Binance holds in reserve to meet potential redemption requests for the number of B-Tokens it has minted. Binance maintains that all assets are sufficiently backed in the event of such requests.