Key takeaways
The transparency of the blockchain is one of its characteristics, and is not a bug. It guarantees the opening of this new financial system to the close surveillance of users around the world, and thus differentiates it from classic finance, where corruption and crime can go unnoticed for decades.
In keeping with the blockchain's principle of transparency, Binance publishes its wallet addresses online and offline, allowing outsiders to view transactions related to the exchange's main wallet.
Some recently published media articles draw serious conclusions based on misinterpretation of blockchain data. These erroneous conclusions fuel conspiracy theories that are often taken as true without question, as the majority of media outlets have only a limited understanding of blockchain and how crypto exchanges ensure smooth operations, liquidity. sufficient and protection of users against threats.
Large crypto exchanges have implemented sophisticated wallet management systems, which are supposed to dynamically interact with online and offline wallets to ensure liquidity and security. To prevent their processes from being too closely monitored, some exchanges like FTX once decided to keep most of their wallet addresses secret. Despite the negative press, Binance has chosen not to give up its vow of transparency, an essential quality of the blockchain.
We maintain an internal register which records the exact amount held by each of our users, and which is verifiable through our proof of reserves system.
We happily accept in-depth reviews; they enable us and the entire sector to improve our resilience. However, the lack of an overview of our processes leads some journalists to inaccurate conclusions. We are responding to them today in order to involve and inform users and the media as best we can.
Since the implosion of FTX, our sector has been subject to very close surveillance. This is completely normal: no company, and especially not one that its customers entrust with money, should have the right to operate with impunity. As the leading exchange in the sector, Binance also had to answer difficult questions.
It is the transfers of funds between blockchain wallets that have attracted the most attention; they are also the subject of recent “analyses” published in the media. We have observed external sources draw serious conclusions based on inaccurate observations of asset movements on the blockchain. These deductions then serve as the starting point for fables that sow confusion among investors and attempt to lower Binance to the level of the most unscrupulous players in the industry, all while garnering as many clicks and views as possible.
By undermining the attempts of personalities and companies who take responsibility and try to strengthen the confidence of users and regulatory authorities, these falsely based accusations harm Binance, but also the sector as a whole. We hope that at least these accusations are based on the inability of their authors to correctly interpret the data, and are not inherently malicious.
Since such "investigations" are now the norm, we choose to view them as an opportunity to challenge the public to be logical and expose some of the technical aspects behind fund transfers on our exchange, also with the aim of annihilate these unfounded statements.
Before going into details, we would like to remind you that our users are able to withdraw their funds at any time. This possibility has been proven time and time again, even when the news was particularly pessimistic like in December 2022. These withdrawals are only possible through wise and careful management of user funds.
In our opinion, the most convincing proof of the functioning of our exchange is its ability to overcome several bear markets and gigantic waves of panic caused by FUD sentiment, which would have wiped out some of the largest traditional financial institutions in the world. Again, this is a feature and not a bug.
Binance Wallet Management System Explained
Binance's 24-hour average trading volume currently stands at approximately $38 billion, across multiple blockchain networks. This volume is significantly larger than all other exchanges.
Today, major crypto exchanges have implemented sophisticated portfolio management systems, which are mostly misunderstood. At Binance, we have adopted a dynamic operation that leverages online and offline wallets to ensure sufficient liquidity to fill each order in real time while mitigating potential security threats. Remember these two facets of our system (liquidity and security), because they are an integral part of how our wallets work.
As we have already explained, we maintain an extensive network of online, offline and deposit wallets in order to transfer funds quickly and efficiently. We also have an internal accounting register that tracks the assets belonging to each user in real time, and which is fully verifiable from our proof of reserves, or PoR, system. However, it is almost impossible for an outside observer not to make mistakes when interpreting fund movements. It should also be remembered that our PoR system only records funds deposited as security for user debts and funds in reserve, and does not include assets owned by Binance and held by the company for its purposes. own commercial use. User assets are tracked separately from Binance company assets.
Add to that the fact that funds move between portfolios can have a multitude of different reasons. It is sometimes necessary to transfer funds from a Binance offline wallet to a Binance online wallet to ensure sufficient liquidity for tokens in high demand, or to allow a user to withdraw an amount important (which could also be the work of a large trader, also called a “whale”, or a hedge fund with an institutional account at Binance). A transaction between Binance wallets in the opposite direction may mean that funds are sent to an offline storage device for added security. Fund transfers between a Binance online wallet and an external wallet often represent user withdrawals, and when transfers are made in the opposite direction, they are generally deposits made by users.
The diagram below will help you understand in detail the movement of user assets on Binance. When a user deposits funds on our platform, they are transferred to what we call a deposit wallet and appear in the user's Binance account.
Binance regularly “sweeps” funds from custodial wallets and sends them to omnibus online wallets in a process called consolidation. Online wallets are essential for validating withdrawals: upon receiving a withdrawal request, our system sends the user's funds from the online wallet while simultaneously deducting the corresponding amount from the balance of their account. Consolidating funds in the online wallet allows us to respond to withdrawal requests while keeping wait times and fees low for users.
Surplus funds are transferred from online wallets to a secure storage device: an offline wallet. This process is known as overflow. When the balance of an online wallet is low, funding from an offline wallet may be necessary.
Here, it must be remembered that the scanning and transfer of funds between deposit wallets, online and offline are processes visible on the blockchain and completely independent of variations in the balance of users' accounts.
Correction of recent media articles
Some recently published media articles draw serious conclusions based on misinterpretation of blockchain data. These erroneous conclusions fuel conspiracy theories that are sometimes taken to be true due to the limited understanding that the majority of media have of blockchain.
Generally, these articles do not specify which portfolios are analyzed by the journalists, nor how they decipher the different movements of assets on the blockchain. Without an overview of our processes, some journalists draw inaccurate inferences about the nature of the transactions they observe. This is why these articles are often ridiculous, and offer nothing to readers other than fallacious questions (but located in a legal “gray” area), open to all hypotheses by way of conclusion.
The transactions cited in the most recent articles are simply the work of institutional clients withdrawing their own assets from our platform, and in no way constitute Binance's misuse of collateral to "bail out hedge funds", as suggested one misguided journalist. Such astonishing conclusions can only be the result of fundamental misunderstandings of the portfolio management process.
In fairness, many of these articles, regardless of their age, tend to cover a period when the distribution of user funds, our own funds and collateral between our various wallets was perhaps not not be as explicit as it should have been. This lack of clarity was compounded by the frequent internal movement of funds between our numerous portfolios. As a result, external observers were apparently misled and did not fully understand how the processes involved worked, and by extension did not fully understand the purpose of the various transactions.
All of these articles share the same characteristic: none realize that our wrapped tokens have never been under-collateralized, and that we have always maintained sufficient reserves in our accounts. This is why we have put so much effort into further developing our proof of reserves and proof of collateral systems in late 2022 and early 2023.
Binance keeps all of its customers' assets in separate accounts. User funds are verifiable through our PoR system, which proves the amount of user assets held as well as the amount of user collateral using Zero-Knowledge proof , unprecedented in the sector. The latest update of our PoR system includes proof of collateral for B-tokens, and anyone interested can check at any time the strength of the reserves against which the wrapped assets issued by Binance are backed.
Even if Binance has acknowledged in the past that the management processes of the wallets containing the collateral tokens attached to Binance had not always been impeccable, the collateralization of user assets has never been affected. The management processes for our collateral portfolios have been corrected over the long term; the rectifications are verifiable on the blockchain.
A final word on portfolio management
We welcome in-depth oversight because we believe it will enable the entire industry to become more resilient and regain the trust of users and regulators in this financial system. That said, the slander aimed at lowering Binance to the level of FTX has not achieved its goal, and never will, because we keep our users' assets at a 1:1 ratio and have proven time and again many times that they were able to withdraw their funds as soon as they wanted.
Some journalists will bend over backwards to look for the little beast and unearth the tiny upheavals we once suffered as a result of very short-lived operational difficulties; but users will be able to recognize these “yes, but…? » for what they are: irrational dodges.
Binance maintains clearly separate records for user funds, related assets and its own holdings. At any time, we know the exact amount each of our users holds, and we maintain sufficient funds to respond favorably to each withdrawal request. Once again, all this is verifiable thanks to the PoR system.
We will continue to do our best to engage and inform journalists and the world about how all of these processes work, and we will gladly answer any honest questions asked by anyone who wants to learn more.
For more information
Wallet transparency at Binance
Proof of reserves
Proof of B-Token collateral
Trade anywhere with the Binance mobile crypto trading app (iOS/Android)
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