Binance admits to accidentally mixing customer funds and reserve tokens

The crypto market is ready to move up to the next step

  • Binance admits accidentally mixing client funds with reserves, adds that the “historical operation oversight” is being fixed.
  • A cold wallet containing reserves for Binance-peg tokens exceeded the required amount, which indicated the mixing of funds.
  • Binance reportedly processed $345 million in Bitcoin transactions with Bitzlato, a crypto exchange charged with money laundering by the US DoJ.

Binance is not only the world’s biggest cryptocurrency exchange but also a key leader in the crypto space. The impact and influence of developments pertaining to Binance are significant, which makes its current situation concerning, as it is under fire from all directions.

Binance makes a mistake

Binance admitted to accidentally mixing client funds with reserve tokens in a cold wallet, according to a Bloomberg report. The exchange is in the process of correcting the mistake, according to a Binance spokesperson.

Binance is known to hold the reserves for almost 47 cryptocurrencies out of the 94 assets that it issues. These reserves are stored in the form of Binance-peg tokens, also known as B-tokens, which are stored in a cold wallet called “Binance 8”. However, the wallet was observed to contain more tokens in its reserve than necessary for the total amount of B-tokens issued.

This was evidence of the fact that the collateral of the B-tokens also included customer funds instead of being separated as specified by Binance’s own guidelines. Speaking on the same, a Binance spokesperson said to Bloomberg,

“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.”

The spokesperson also went on to add that the cryptocurrency exchange was aware of the ongoing error and that they are in the process of transferring the assets to their dedicated collateral wallets. 

He further reassured the customers that all users’ crypto is backed 1:1 at all times. Calling it a “historical operational oversight,” Binance failed to state when the problem was first identified.

Binance deals with alleged criminals

On Tuesday, Binance was reported to have conducted Bitcoin transactions worth over $345.8 million with cryptocurrency exchange Blitzlato, according to data from Chainalysis. Last week, Blitzlato along with its founder, Anatoly Legkodymov, was charged by the United States Department of Justice (DoJ) with money laundering.

As reported by Reuters, about 205,000 transactions have been conducted between Binance and the now-closed crypto exchange. 

Out of these transactions, close to $90 million worth of transfers were observed after August 2021, making Binance among the top three counterparties of Blitzlato, according to the US Treasury’s Financial Crimes Enforcement Network (FinCEN).

Written by John Brighton