Binance, the world's largest crypto exchange by volume, said that after a turbulent year for the crypto industry, prioritizing risk management, transparency, disclosures and security is paramount to restoring trust in the industry. Binance recently released a policy paper, which outlines actionable framework detailing the company’s efforts to build a secure crypto ecosystem with a foundation of trust and safety and which contains guidelines for all centralized exchanges (CEXs) to raise the bar in these critical areas.
"2022 was a historic year for the crypto industry," Binance said in its policy paper. "This was a watershed moment where rebuilding user and regulator trust is critical for the future of the whole ecosystem. Users will demand more from centralized exchanges, and the exchanges must rise to the occasion. With this in mind, all players in the digital assets space have a fundamental responsibility and part to play to prove that a few bad actors are not emblematic of the industry. Winning back policymakers, regulators and the community’s trust will require putting risk management, security and transparency front and center."
The paper was published Feb. 16 amidst scrutiny from the U.S. Securities and Exchange Commission (SEC) and just two days after a Senate Banking Committee hearing that focused on how to move forward with crypto regulation.
In its policy paper, Binance said that it is critical to ensure that customer funds are handled appropriately and that wallets are extremely secure.
"Exchanges must be risk averse with user funds," the paper says. "Customer assets should never be used in any other way than what the customer consents to under the terms of specific products."
Binance said one of the ways it is working to meet these standards is by guaranteeing that it holds users assets 1:1, and does not use customer funds for any purpose outside of what a user has agreed to in the product's terms. Binance also said it applies the highest security standards possible to its wallets, acknowledging that protecting users is the exchange's primary role. Every year, wallet security is one of Binance's largest investments, according to the paper. After reviewing and considering third-party wallet software, Binance determined that using its own wallet infrastructure was the best way to keep user assets safe. Binance also said it is working to improve the self-custodial Trust Wallet.
The paper includes a statement by CZ, the Canadian CEO of Binance, from when he spoke at the G20 conference in Bali in November.
"Everybody in the industry has the responsibility to protect users," CZ said. "We hope industry players can cooperate to gather opinions and set strong standards. Given the recent series of events in this year, Binance sees the importance of developing common guidelines. We will try to get together with other industry players to form common business standards. All industry players need to increase transparency and work closely with regulators to make the industry more robust.”
A major factor in the loss of trust the crypto industry experienced in 2022 was the collapse and bankruptcy filing of crypto exchange FTX, which was caused, at least in part, by the mishandling of customer funds. Caroline Ellison, a former close associate of Sam Bankman-Fried, the former CEO of FTX, admitted that she and Bankman-Fried had taken FTX customers' funds and used them to make "illiquid" investments through Alameda Research, an affiliate of FTX that Ellison formerly headed, the Seeking Alpha reported. Ellison pleaded guilty to seven criminal charges in December, and she told a New York judge during her plea hearing that she "knew it was wrong," and that Alameda Research could access an unlimited line of credit from FTX. Ellison said under oath that Alameda borrowing FTX customer funds was concealed from customers and investors.
In early January, Bankman-Fried pleaded not guilty to the criminal charges filed against him, Investopedia reported. Bankman-Fried's trial is scheduled to begin Oct. 2. He is accused of using customer funds to make investments and political donations, as well as for his own personal benefit. If he is convicted, he could face as many as 115 years in prison.
