According to a Wednesday report, the world’s largest crypto exchange, Binance, is working toward a new partially automated approach for managing token-backing reserves. In recent months, the corporation has been subjected to heightened regulatory scrutiny and has conceded that its compliance in the past was weak.
Binance is transitioning to a “semi-automated” process for managing the reserves of tokens it produces, following several years in which reserves were mixed with client funds and at least one significant stablecoin, Binance-peg BUSD, was not always completely backed.
Binance makes protocol changes
According to reports, the crypto exchange is introducing a new, largely automated administration system as part of its ongoing push to increase the reserves for Binance-peg tokens. The mechanism is intended to guarantee that tokens are “always transparently backed” and that no additional minting will be permitted until sufficient collateral has been transferred to the required wallets.
The crypto behemoth has been accused of improperly backing a number of its coins, including the now-discontinued stablecoin BUSD. Early in January, the exchange addressed the charges and acknowledged that there had been disparities in collateral in the past. However, the company further indicated that the inappropriate backing was mostly attributable to the frequency of reserve rebalancing and that it had already identified and resolved the issue.
Early in February, the crypto entity enhanced its proof-of-reserves system by adopting zk-SNARK. This zero-knowledge verification approach enables a single person to evaluate the integrity of a statement without disclosing any more information. The motivation to strengthen proof-of-reserve and rectify any lingering weaknesses arose after the collapse of FTX exposed a number of potential operational flaws in certain exchanges.
Here are the details for the new system
Binance will implement a new system to prevent the mixing of B-Token collateral and consumer cash. In addition, Binance has developed a partially automated mechanism that ensures B-tokens are “always visibly backed” through a system that only permits new currencies to be generated when collateral has been uploaded to the relevant wallet, according to a Bloomberg spokeswoman.
Over the last few weeks, we have been moving the collateralized assets to dedicated wallets, one for each network, to make the 1:1 backing clearly visible. This collateral has always been backing our users’ B-token assets and has always been available for withdrawal at any time. We are now simply showing it on-chain in dedicated wallets where it will remain until it may be required.Binance Spokesperson
Bloomberg stated that the company stored collateral for nearly half of its 94 Binance-peg tokens (B-tokens) together with user cash in a single $16 billion wallet.
Bloomberg reported that Binance has now implemented a procedure that assures B-tokens are “always transparently backed.” This is accomplished through a system that “only allows minting of new coins when collateral has been supplied to the proper wallet,” according to the new structure.
The move could be a public relations stunt to boost reserve transparency in the midst of a regulatory crackdown on centralized exchanges. Bloomberg argued that the semi-automated mechanism may allow Binance to respond if an incident impacted the B-token reserves.
Conor Ryder, a research analyst at blockchain data startup Kaiko, said it still offers them the power to flip the switch if the worst happens before adding:
But it isn’t an ideal fully-automated system, and we’ve seen before that Binance has mismanaged the kind of minting process that goes on here […] There’s still potentially an element of trust that needs to be placed in Binance and its management of these reserves.Conor Ryder