Introduction
The largest crypto currency exchange platform Binance regularly publishes its crypto holdings to assure customers that their deposits are really in safe hands. Binance and many other centralized crypto exchange platforms call it Proof of reserves. Many like Binance publishes a monthly proof of reserves document showing how much crypto has been deposited by users and how much of it is actually kept in storage for them.
Much of what is done by crypto exchange platforms like Binance is based on Trust. It works exactly like today's banking system. You deposit money with the bank and trusts that they will keep your funds. You are not afraid that the bank will suddenly close shop and run with your money. In the same way, centralized crypto exchange platforms hold funds deposited in user wallets. Each user gives Binance and other such platforms custody of their funds. With each monthly proof of reserves document, the exchange is assuring users that the funds are actually there with them and safe.
605k BTC in reserve and more!
Binance released its proof of reserves document as at September 1 2024 to its millions of users. The document contains each crypto assets deposited by users through their Binance wallet and how much of each deposit is being held in storage for them. Lets take a look below at the top 6 cryptocurrencies by volume deposited by Binance users and held in storage by the platform.
BTC is the most traded crypto on Binance. As at 1st September 2024, users deposited a total of 605,690 BTC. Binance has a total of 647,106 BTC in storage. That basically means all the BTC users have deposited are complete in storage and could be produced if there is a situation where everyone wants their BTC back.
The next largest token deposited by Binance users is the stablecoin USDT. A total of 22,111,872 USDT have been deposited. In Binance reserve wallet, there is +24m USDT which is more than enough to settle everyone that has deposited USDT.
Third largest asset that users have deposited is Ethereum. Users have deposited 4,486,359 ETH in September. The crypto exchange has more than that amount in its wallet. The figure kept in reserve for Ethereum is 4,651,360. Again, there is enough to return back to all the wallets that deposited ETH if need be.
Occupying number 4 spot of crypto assets deposited by Binance users is the platform BNB coin. A total of 40,707,048 BNB has been sent to Binance and stored in user wallets. The exchange keeps a balance of BNB more than what users have deposited. The figure for BNB from the reserves is 43,368,757.
The coin that holds number 5 position on the Binance platform is Solana. Users have deposited a total of 32 million SOL to Binance. From the reserves wallets, there is a total of 32,892,450 SOL. Again, there is more than enough SOL to send back to the depositors assuming they all want to withdraw their funds.
The above just shows the top 5 tokens deposited to Binance by users. Of course there are many other tokens that users hold in their wallets. You can check out the full Proof of reserves document for this month of September 2024. Click here to see it.
Proof of reserves not equal full ownership
As expected in the above document, there is always more than enough of the tokens deposited by users in the exchange reserves wallet. The idea like I said earlier is to make users feel safe that their funds are in safe hands. Little wonder that this document has to be updated and made public each month. But then, there is still the not-so-small matter of asset control and ownership.
Scams and recent issues of mismanagement of user assets gave proof of reserves document it relevance. Users need to be sure that their money is not just existing in numbers, but in reality. There have been many instances of bad actors that breached trust which resulted in the loss of assets by users. Many will not quickly forget the FTX collapse which sent the CEO to prison for stealing founds entrusted to his exchange. If there was a way for FTX customers to regularly confirm that their funds were safe, maybe the disaster would have been so devastating.
But then, publishing a proof of reserves document does not do much good to guarantee asset safety and full ownership. Centralized exchange platforms are still run by people who can turn bad anytime. Beside that, you are not in full control of your assets. The exchange could withhold your assets if they got authority from government to seize the funds. Or if they feel that there is suspicious activity within a particular wallet. Again, some exchange platforms might prevent you from taking your assets if they feel that it is below the required minimum withdrawal amount.
All the above are challenges that remain there even if they publish the proof of reserves document as often as they wish.
Non-custodial wallets for full ownership
It is best to use the exchange platforms like Binance for the reason they were setup - a medium to swap of asset to another and move them on. It will always remain big risk to store digital assets in custodial wallets like Binance. The risk of loosing they and being prevented from accessing them is huge.
There are far better avenues to store crypto and retain full control of it. Using non-custodial wallets is always a good option. For non-custodial wallets, you retain full control and ownership of your assets. There is no need to ask for or expect a proof of reserves update from anyone because you are fully in control. Other options might include offline hardware wallets. These are channels through which crypto could be stored and the user remains full the owner and in control.
It is still surprising to see how much funds users leave in custodial wallets like Binance, isn't it?
Note: Thumbnail is mine