Binance is committed to backing user assets at a 1:1 ratio and building a debt-free corporate Capital structure for sustainable development in the cryptocurrency market.
Blockchain is the most exciting innovation of the past few decades, revolutionizing many products and services in the financial sector and beyond.
Cryptocurrencies are the most recognizable application of Distributed Ledger technology, with many innovative applications, untapped potential and utility. However, user trust in cryptocurrencies has been severely depleted following a series of crashes and scams.
The process of regaining trust from policymakers, regulators and the community cannot be done alone but requires the collective efforts of the entire market.
Binance representative said that, as a leading company in the crypto industry, the exchange is determined to rebuild the trust of customers and stakeholders through strict and transparent user protection policies. and asset reserve mechanism to ensure safety.
Build trust in the crypto ecosystem
Binance offers a specific actionable framework, designed to optimize the building of public trust in a safe and trustworthy crypto ecosystem. Binance calls on all centralized exchanges and blockchain companies to demonstrate a sense of responsibility to the community.
Binance's Code of Conduct provides specific guidance in a number of areas that can build trust with customers and regulators.
Handling customer assets
Exchanges need to:
- Prevent unauthorized use of customer assets: customer funds are never used in any form or for any purpose other than what the customer agrees to, based on the terms of the product specific product.
- Wallet infrastructure and security:
- CEX must provide users with clear information about options for storing digital assets and the freedom to choose the solution that best suits their individual needs, trading habits and independent risk assessment .
- The process of depositing and withdrawing assets to and from the account must be simple, cost-effective and seamless, regardless of the storage solution the user chooses. Besides, exchanges must apply the highest security standards to assets held by them to minimize risks to users.
How Binance protects users:
- Use of customer assets: Binance holds user assets at a 1:1 ratio, protected by the highest wallet security standards, and does not use them for trading on exchange accounts or for any other purpose. any other purpose without the customer's consent according to the specific product terms.
- Wallet infrastructure and security:
- Binance uses its own wallet infrastructure to protect user assets and assets owned by the exchange. Binance spends hundreds of millions of dollars on security, hires the best people, and uses the best technology. This is one of the largest investments the exchange makes each year. Binance believes that its wallet infrastructure is one of the most secure in the industry.
- Binance XEM using third-party wallet software but found the security of the Binance ecosystem to be superior to other providers.
- The exchange is also continuously improving Trust Wallet - a self-custodial and multi- chain wallet service provider and part of the broader Binance ecosystem. In November 2022, Trust Wallet gives users easy access and provides a new option for asset safety (self-management).
Transparency and disclosure
Properly implementing proof of depositary reserves is a very complex process, new and unique to the industry, and quite different from traditional financial institutions. However, new technologies have made innovative solutions possible.
Exchanges need to:
CEX should publish a reserve proof tool based on Merkle Tree and zk-SNARK technology.
- This technology allows users to XEM each account's total net balance is non-negative and all of the user's assets are part of CEX's total confirmed net asset balance. no, in a private and secure way.
- zk-SNARK ensures data integrity and privacy, proves reserves, and increases CEX transparency, helping to build trust in the blockchain industry.
How Binance protects users:
- Binance is in the process of making continuous improvements to the PoR system, starting with the reveal of the hot and cold system from November 2022.
- In February, Binance upgraded the PoR system with zk SNARK - a zero-knowledge verification method that keeps user information private and secure, while requiring a large amount of computing power to obtain. can break the security of that information.
- This is the first version to implement zk-SNARKs and continues to improve the system. With the latest update, 80% of the exchange's assets are protected and more Token continue to be added. The exchange also strives to build greater reliability and security into the verification function. Binance's PoR system provides high transparency, benefiting the entire community.
Risk management
Exchanges need to:
Prudent Capital structure:
- With the past year's volatile macroeconomic and geopolitical developments, efficient use of Capital is critical to the success of any company. Even established sectors that are less volatile than cryptocurrencies are taking a cautious stance on using leverage to fund growth.
- The risk is further exacerbated by the volatile nature of the crypto asset industry. Companies in the crypto and digital asset sector are encouraged to maintain a conservative approach to Capital structure.
- The constant fluctuations in coin values, especially in the early days, make relying on debt to fund growth more difficult and generally inadvisable.
Token are properly collateralized:
- Wrapped Token provide a great interoperability solution that allows users to move assets seamlessly, taking advantage of applications, projects and opportunities on other blockchains. This brings various benefits such as faster transaction times, lower gas and other fees, yield farming opportunities, and many new uses.
- To ensure value stability, wrapped Token must always be collateralized at a 1:1 ratio on the original chain, with clearly defined collateral that can be verified by the community.
Token listing requirements:
- Centralized exchanges have an important responsibility to implement strict governance processes to allow crypto assets to be traded on their platforms.
- All centralized exchanges must impose their own due diligence and careful listing requirements to protect users from low-trust and high-risk projects.
User Protection Fund:
- Exchanges should establish reserves, which act as safety nets to protect users in the event of data security threats.
- A commonly used approach is to conduct periodic reviews of the total value of the fund, which can be topped up to maintain revalidation coverage during market downturns. Besides, the fund's assets must be kept safe and not be violated in the worst cases.
Education:
- The best form of consumer protection. Spreading financial knowledge about cryptocurrency and adopting blockchain education is key to crypto's early mass adoption.
- All exchanges dedicate the necessary funding to provide adequate knowledge about their products and services and providing the right level of knowledge and investing in user education is key. key to the future of the industry.
Loans must be properly collateralized:
- CEXs that offer lending or margin/leverage products need to ensure these products are properly collateralized.
How Binance protects users:
Prudent Capital structure:
- Binance uses a debt-free Capital structure because borrowing to finance growth is unwise.
Token are properly collateralized:
- Binance offers users several wrapped Token options for use on different chains, such as BTCB and BBTC.
- The exchange's wrapped Token are always collateralized at a 1:1 ratio, with periodic burning to ensure value stability in case of fluctuating demand.
Token listing requirements:
- Binance has a very strict listing process for Token that want to trade on the platform. In the first half of 2022, 450 projects participated in Binance Launchpad and Launchpool only had five projects listed.
- As for Spot Trading, only about 1% of Token are successfully listed on the Binance platform.
User Protection Fund:
- On November 9, 2022, Binance announced a billion USD deposit into the Secure Asset Fund for Users (SAFU) to provide protection for users. Binance is committed to continuous SAFU monitoring and encourages others in the industry to implement a similar mechanism.
Education:
- Binance Academy is a learning portal hosting free educational resources on blockchain and cryptocurrency, available in 25 languages, including over 386 articles, videos, and online courses on a variety of topics.
- In November 2022, Binance Academy launched a chain of online courses that update new information more frequently. All content on Binance Academy is completely free, has no ads, and requires no payment or registration. Everyone can learn at their own pace and needs, and even earn free money by participating in the program.
The loan must be properly collateralized:
- Binance's lending and margin products are always fully collateralized.
Binance's Proof of Reserves-of-Reserves system
Since a year ago, in the context of users losing trust in cryptocurrencies, Binance sought to support the recovery of the entire industry. The two main principles that form the floor's set of standards are the preciousness of customer assets and transparency.
Transparency about customer assets is key to restoring user and regulatory trust in the cryptocurrency industry. Binance's Proof of Reserves (POR) system went live in November 2022, focusing on "responsible management of user funds." The exchange always maintains enough reserves to cover any withdrawals and focuses on security.
Transparent technology
Blockchain is the ideal environment to maintain and realize money transparency. However, with Binance's massive user base and operations, finding a technological solution that allows everyone to easily access reliable evidence of the exchange's reserves is a daunting task. challenge. Binance's Proof of Reserves -of-Reserves (POR) system demonstrates its commitment to protecting user funds and maintaining this ethos.
Initially, the system used Merkle tree cryptography - a method that allows merging large amounts of data into a single hash function, to add on-chain data to the reserve. The verification process entails building a user ID that encodes a Merkle tree with net asset holdings at the Token level. The output – called the Merkle root – acts as a cryptographic seal that “summarizes” all the data inside. This method allows users to verify specific subsets of encrypted data, effectively XEM their own assets are securely stored.
However, this design only allows for full transparency if individual account balances are publicly visible – something Binance does not do for security and privacy reasons. Another shortcoming is that a regular Merkle tree can be manipulated by adding fake user accounts with negative balances to distort the overall picture.
To address these limitations, in the February upgrade, the exchange's developers implemented the zk-SNARK protocol - a form of zero-knowledge proof, on the core Merkle tree. This type of Cryptographic Proof allows one party to establish the validity of a statement given to another party without revealing the content of that statement. In this case, it allows Binance to demonstrate full support of a user's funds without revealing each person's balance.
Therefore, zk-SNARK combined with a Merkle tree allows users to verify whether their funds are included in the calculation of the user's total net asset balance.
Build with the community
The implementation of the zk-SNARK cryptography marks the first time a cryptocurrency institution has leveraged this approach in building proof-of-payment solutions. The platform opens source POR code with the hope that the rest of the crypto industry benefits from this innovation.
Binance also encourages the community to provide feedback to help make the system even more robust. Shortly after its release in February, a blockchain security firm examined the POR code and pointed out vulnerabilities in the upgraded Proof of Reserves solution. The exchange quickly resolved the issue.
This case illustrates the exchange's approach to promoting user fund transparency. Instead of XEM this as an arms race, the exchange wants organizations in all fields to develop better and is grateful for comments that help the exchange change for the better.
Binance is committed to always backing user assets at a ratio of at least 1:1, as well as continuously working to find innovative ways to ensure user peace of mind by maintaining transparency in reserve source.
The exchange's reserve assets were only Bitcoin when the fund was announced, but by the end of 2022, the fund supports a total of nine Token. One year later, Binance's POR system recorded user funds converted into 31 different digital assets – more than any other centralized exchange. Over the past year, Binance's Proof of Reserves system continued to undergo many upgrades and developments.
As of early November, the exchange held enough BTC to cover approximately 104% of customer net balances, 105% of ETH balances, 111% of BNB balances, and more than 118% of total USDT deposited by users. communication. Binance affirms that user funds are always safe and customers can check for themselves at any time.
Conclude
Digital assets have enormous potential to promote financial freedom and improve people's lives, providing a model for the fair, transparent and efficient transfer of information and value online. However, the industry is still in its infancy and the community must be extra careful as more and more people enter the innovation space and leave their assets at the mercy of it.
Building trust with users is a process of persistent and lengthy efforts. Binance understands the importance of trust and safety for the community and the future of the entire ecosystem. Therefore, the exchange always updates sets of standards consistent with the context of continuous development and expansion of financial resources, providing users with a safe and transparent trading environment.
Also Read: The transformation of Binance - the leading global company in the industry
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