Key points:
Binance launched the Proof of Reserves (PoR) system two years ago to increase transparency of user assets and ensure that all user assets are always backed by at least 1:1.
PoR has since become a requirement for centralized trading platforms to be accountable to their users, and a tool for building and maintaining trust in the crypto asset ecosystem.
Binance has been continuously improving PoR technology, combined with advanced protocols such as zk-SNARKs, which can transparently capture debts and liabilities, allowing users to more clearly understand their debt collateral information.
Two years ago, in response to the trust crisis in the industry, Binance launched the first generation of the Proof of Reserve (PoR) system. We are proud to be one of the first exchanges in the world to support user asset transparency and publicly disclose user asset custody proof, which shows that Binance has always been committed to fully backing users' assets with reserves at a ratio of at least 1:1.
Today, maintaining a proof of reserve system is a requirement for any responsible centralized exchange. User assets are securely stored and maintained on a 1:1 basis, which is critical to building and maintaining trust. As the industry continues to mature and crypto assets become more popular at an unprecedented rate, let's review the major progress and uniqueness of Binance's PoR system in the past two years.
Leading the industry in Proof of Reserves technology
Since the beginning, we have been committed to continuously improving and enhancing PoR technology. Our initial system used Merkle tree cryptography to integrate user asset data, aggregating user assets by creating a Merkle root. While this approach provides reliable data verification, the community has also highlighted potential privacy issues and manipulation risks associated with it. To address these issues, we implemented the zk-SNARK protocol in February 2023. This zero-knowledge proof technology combined with the Merkle tree allows Binance to prove full support for user assets without revealing personal assets. Users can now verify that their assets are included in the calculation of the total net asset balance, while ensuring privacy and security.
Recently, we have incorporated user collateral information and lending business logic into our PoR system to ensure that users' debts and liabilities are captured efficiently and accurately. Even without the current level of asset transparency, the system can still prevent any theoretical loopholes that may appear in the calculation.
Binance's PoR system is unique in capturing debt, liabilities, and collateral information, providing a comprehensive view of real liabilities and further proving that users' assets on the Binance platform are backed 1:1. No other exchange provides so much detail in its PoR system, and many exchanges with lending operations do not consider user liabilities at all. Binance is leading by example and setting a standard for PoR transparency.
Trust Pillar
Binance builds trust by increasing transparency into user assets, and our guiding principles are the absolute priority of community, education, and user asset security.
As the world's largest exchange, Binance serves nearly 240 million users, and we have a responsibility to be as transparent as possible when managing user funds. Our PoR system delivers on this promise, and it has consistently proven that we provide more than 100% of user holdings for the 34 major tokens tracked by the system.
Building with the community
We believe in the fundamental importance of transparency in the industry. Early in the development of PoR, we decided to fully open source the code to promote widespread popularity and adoption of the technology. Open source code can help other industry participants improve their PoR mechanisms for the benefit of everyone, among other benefits. We often receive contact from researchers and community members about potential weaknesses or feasible improvements they have discovered. Whether it is a security audit company that has discovered a potential vulnerability or a researcher at the Ethereum Foundation who has discovered a theoretical problem that may arise from capturing debt, we are able to promptly fix and enhance our PoR system to keep it in the best business condition.
Continuing Education
Raising awareness of Proof of Reserves is crucial, not only for the Binance platform, but also for the entire cryptocurrency community. The original vision of Proof of Reserves was to emphasize transparency, accountability, and trust within the ecosystem. By deepening the understanding of PoR principles and technology, the crypto community can contribute to preventing major industry black swan events that may occur.
Our PoR website and Binance Academy offer a variety of educational resources suitable for all expertise levels. From comprehensive articles breaking down complex concepts like ZK-snarks to a glossary of crypto terms commonly used by the community, our goal is to demystify core concepts. By helping the community understand Proof of Reserves, we can contribute to the overall resilience and trustworthiness of the cryptocurrency ecosystem.
Prioritize the security of user funds
PoR is the core of our commitment to protecting user funds, and it clearly demonstrates that user funds are kept safely and responsibly. The concept of user fund security first is deeply integrated into Binance's DNA. In 2018, we established the SAFU Fund to assure users that Binance will also protect their assets in extreme cases. Users are always our top priority.
Binance's Proof of Reserves (PoR) system is a tangible demonstration of our commitment to the security and transparency of user funds. Over the past two years, even during market volatility and peak withdrawal periods, Binance has consistently proven the reliability of our PoR system, maintaining a 1:1 ratio of user assets held, and handling a massive amount of withdrawal requests. By continuously enhancing our PoR technology and integrating industry-first solutions such as zk-SNARKs and liability information, we are confident that the system can gain more trust within and outside the global crypto community. PoR is not just a cosmetic move, but a true reflection of Binance's due diligence in managing user funds.
