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Binance’s Semi-Automated System

by Hans Lipper

Binance, a leading cryptocurrency exchange, has recently announced the implementation of a semi-automated system to govern the reserves that back the tokens it issues. This comes after it was discovered that Binance had mistakenly stored collateral for almost half of its 94 B-tokens in a single wallet that also held customer funds. The new system will ensure that the B-tokens are “always transparently backed” by only allowing minting of new coins to take place after collateral has been added to the appropriate wallet.

The move may be a PR exercise to increase reserve transparency amid a regulatory crackdown on centralized exchanges. The semi-automated system might enable Binance to intervene if an incident were to impact the B-token reserves. However, research analyst Conor Ryder has pointed out that there is still an element of trust that needs to be placed in Binance and its management of these reserves.

In order to further improve its proof-of-reserves system, Binance has implemented zero-knowledge proofs in the form of zk-SNARKs. This enables users to check that each account’s total net balance is non-negative and that all user assets are part of Binance’s claimed total net balance. Zk-proofs are a cryptographic method of proving the validity of a statement or data without revealing the data or statement itself.

Overall, Binance’s move to a semi-automated system is a step in the right direction in terms of increasing transparency and trust in the exchange. The implementation of zk-SNARKs is also a positive development that will help users to verify the validity of their assets. It remains to be seen if this will be enough to satisfy regulators and ensure the long-term success of the exchange.

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