By George Ward
Recently, the cryptocurrency community has turned its attention to Binance after discovering that the exchange moved $2.7 billion from its “proof of reserves” wallet.
According to a Reddit post, the exchange lacks sufficient proof of reserves on the BNB chain. In addition, some community members assert that Binance transferred 2.7 billion USDT 20 hours after publishing its report.
Notably, the report omitted to mention the destination address. Later, 200 million USDT were sent back, leaving 2.5 billion USDT in the secret wallet. In its response, Binance said the hidden wallet is a TRX cold wallet.
A top-level executive of the exchange said that the “asset movements are routine transfers among the firm’s internal wallets. In addition, a Binance representative stated that the reserves and liabilities could be code-verified.
He explained that this is possible because the exchange collaborated with Vitalik Buterin to develop a Merkle tree proof of reserves for associated purposes.
The Crypto Community Is Skeptical Of Binance
Meanwhile, the crypto community doesn’t agree with the exchange’s explanation. The community cited an old tweet by CZ where he wrote, “It should be clear as day to anyone that an exchange moving such an amount so soon means that there’s a storm brewing.”
Then, he responded to his tweet, saying, “Avoid it. Remain #SAFU.”
The crypto-sphere also refers to what it claims are insufficient reserve proofs for different currencies. For example, a prominent crypto member criticized Binance for “failing to provide adequate proof of reserves for assets in the BNB chain.”
The member further said, “Binance could create phony tokens in the BNB ecosystem that are not backed by any underlying asset. Then, sell and use those assets.”
According to the post, many tokens lack sufficient reserves to support their current circulation rate in the BNB ecosystem. They also cite an article by Binance that discusses how proof-of-reserves may be the answer to an exchange’s holding problem.
Apart from Binance, other exchanges also publish proof-of-reserves. Crypto exchanges, Gate.io and Kraken, did the same by including liabilities in their audits.
Due to the FTX collapse, major exchanges have conducted audits and published proofs of reserves to reassure the cryptocurrency community that their funds are secure.