In 2022, the crypto industry experienced several damaging events that significantly weakened trust in the digital asset ecosystem. Investors and stakeholders have been left reeling from the fallout, which has ranged from centralized exchange failures to regulatory crackdowns.
In the wake of these challenges, many industry leaders are grappling with rebuilding trust in crypto. One entity taking bold steps towards this goal is major crypto exchange Binance.
Binance believes that improving the trust and security of crypto assets is key to accelerating the mainstream adoption the industry has been working towards for a long time. The exchange strives to lead in this aspect, setting a clear example that other CEXs can follow.
As part of these transparency efforts, Binance recently published a new policy paper titled “Building Trust in the Crypto Ecosystem”. This policy paper introduces guidelines that detail how industry players and users can work together to improve trust, safety and security in the crypto space.
There is also a dedicated Building Trust page alongside the policy paper, where everyone can see how Binance is implementing the new measures. The company has dedicated this page to everything related to trust and transparency. Below are some of the steps Binance has taken to promote trust and transparency.
transparency of funds
The first major element of the policy paper is the safe handling of customer funds. Binance believes that centralized exchanges must adopt a new approach to the transparency of user funds in order to rebuild user trust.
Binance has adopted a variety of Proof of Reserve (PoR) systems using two of the most secure and transparent cryptographic tools, Merkle Trees and Zero-Knowledge Success Non-Interactive Statements of Knowledge (zk-SNARKs). This PoR system allows Binance users to verify their holdings while keeping sensitive user information private.
Binance takes this a step further by disclosing your wallet address with each PoR snapshot. This increases the trust of the users as they can see the repository on the blockchain. To encourage adoption of this PoR system, Binance has open-sourced the underlying code to allow other exchanges to use it and increase their transparency.
Security
Binance prioritizes the security of user assets and other sensitive user information received during the Know Your Customer (KYC) process. Hence, the exchange employs some of the strongest encryption methods to keep these secure.
Binance stores the majority of user funds in cold storage facilities. It also uses advanced security measures, including multi-signature and threshold signature schemes (TSS), to ensure the safety of users’ funds.
The exchange also recognizes that even the most secure systems can fail. As such, it created an emergency insurance fund that protects its users in the event of a security breach. The Secure Asset Fund for Users (SAFU) currently has a balance of $1 billion.
transparency and disclosure
Adequate transparency and disclosure are vital to fostering trust in the crypto industry. Trading platforms should enable users to verify that their assets are kept securely. Binance proposes to use Proof of Reserve (PoR) Disclosure created with Zk-SNARKs and innovative transparency solutions such as Merkle Trees – a technology that increases the efficiency of the blockchain by encoding data in an orderly sequence for easy verification. and enhances security.
Zero-Knowledge Access Non-Interactive Statements of Knowledge (zk-SNARKs) is a cryptographic proof that allows someone to prove that he has some information without revealing the information. Since zk-SNARKs cannot be coined or manipulated, users can verify the security of their assets on any exchange at any time.
risk management
Effective risk management is critical to maintaining trust in a volatile industry like crypto. Many companies collapsed last year due to uncontrolled leveraged positions, excessive collateralized debt and insufficient security funds.
Binance believes that exchanges should ensure that loans are adequately collateralized and avoid taking loans for expansion plans in order to prevent such incidents in the future. They must also ensure that tokens undergo strict vetting processes before listing to protect users from investing in low-credibility and high-risk projects, while educating users on how the crypto market works. More importantly, exchanges must have user security funds as a safety net to protect users in cases of security exploits and extreme bear markets.
Security of User Funds
Binance ensures that all user assets are backed 1:1 and protected by the highest wallet security standards. The platform recently upgraded its third-party self-custody solution, Trust Wallet, to include additional security features that ensure the safety of users’ assets.
The Exchange also refrains from using customers’ funds for any other purpose without the users’ consent.
proof of reservation
Following the collapse of FTX, the third largest CEX in the market, Binance’s efforts to foster trust and transparency in the crypto industry took a major stride. The exchange published its first PoR disclosure in November 2022, which relies on Merkle trees.
In February 2023, Binance updated its PoR disclosure with zk-SNARKs, which represented a significant improvement over the previous system. By disclosing its reserves, Binance allows its users to verify the security of their assets at any time. Another update in March 2023 shows that Binance’s PoR disclosure has been updated to allow verification of user assets for a total of 24 tokens.
Strict Token Listing Requirements
Before any token can be listed on the Binance platform, projects must meet rigorous requirements to determine their eligibility. It allows users to invest only in fully vetted projects.
Binance SAFU
Binance prioritizes the security of users’ assets. Hence, it has a Secure Asset Fund for Users (SAFU) fund which protects users in extreme cases. Binance currently holds approximately $1 billion in SAFU.
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source: cryptopotato.com
