World’s biggest crypto exchange releases proof it’s not the next FTX

Binance boss unveils ‘massive undertaking’ to settle customer nerves

Binance sought a rescue deal for rival crypto exchange FTX but pulled out on Wednesday, 9 November, 2022 (Getty Images)

Leading cryptocurrency exchange Binance has launched a new proof-of-reserves system designed to bring trust and transparency back to the crypto space following the collapse of FTX.

Proof of reserves refers to assets held by an exchange or custodian, which should in theory be capable of ensuring that all customers’ funds are fully paid back in the event that everyone decides to withdraw their all their holdings at the same time.

“When a user deposits one bitcoin, Binance’s reserves increase by at least one bitcoin to ensure client funds are fully backed,” the exchange explained in a blog post.

“[The] Proof of Reserves (PoR) System... is the next step in our effort to provide transparency on user funds. The launch of this feature will start initially with BTC, with other tokens and networks being added in the next couple of weeks.”

Binance displayed a reserve ratio of 101 per cent, meaning there is currently a surplus of bitcoin reserves compared to user funds.

The move follows a commitment made by Binance CEO Changpeng Zhao (CZ) to ensure that retail crypto investors do not lose faith in the space after FTX’s liquidity crisis exposed major failings with one of the most well-known companies in the industry.

The latest effort showed that Binance customers have more than half a million bitcoins held on the exchange, worth more than $8 billion at today’s prices.

“Given recent events, it is understandable that the community will demand more from crypto exchanges, far more than what is currently required of traditional financial institutions. That’s why we’re pleased to provide this latest feature for our users to verify their funds,” CZ said in a statement.

“As Binance’s user community is exponentially larger than the next largest exchange, this is a massive under-taking and will take a few weeks to develop the data for the majority of our assets in custody. We are working to get the next update out as quickly as possible to meet the community’s expectations.”

The boss of rival cryptocurrency exchange Kraken criticized the effort as “pointless” unless the practice included client liabilities.