Main topics of the post:
Binance introduced its Proof of Reserves (PoR) system two years ago to increase transparency of user assets and demonstrate that all of these assets are collateralized at least 1:1.
PoR has since become a requirement for responsible centralized exchanges, a tool to gain and maintain trust in the digital asset ecosystem.
Binance has continued to improve its PoR technology, incorporating advanced protocols like zk-SNARKs and mapping user debts to provide a complete and transparent view of assets and liabilities.
Two years ago, in response to a crisis of trust in our industry, Binance introduced the first version of our Proof of Reserves (PoR) system. We are proud to have been one of the first global exchanges to embrace transparency and make public the proof of ownership of users’ assets, demonstrating our commitment to ensuring that all assets are backed at least 1:1.
Proof of Reserves is now a requirement for any responsible centralized exchange. Clearly demonstrating that users’ assets are securely stored and held on a 1:1 basis is essential to earning and maintaining trust. As the industry continues to mature and crypto adoption unfolds at an unprecedented pace, we look back at the key developments in our PoR over the past two years and the features that make it unique.
Leading the industry towards PoR technology
Since day one, we have been committed to constantly improving and advancing our PoR technology. Our initial launch used Merkle tree cryptography to consolidate user asset data, creating a Merkle root that summarized holdings. While this allowed for reliable verification of data, the community highlighted potential privacy concerns and manipulation risks associated with this approach. To address these issues, we implemented zk-SNARK protocols in February 2023. This zero-knowledge proof technology, combined with Merkle Trees, allows Binance to prove full collateralization of user funds without revealing individual balances. Users can now verify the inclusion of their funds in the calculation of their total net asset balance while maintaining privacy and security.
We recently incorporated user collateral information and lending business logic into our PoR methodology to ensure that user liabilities are recorded effectively and accurately. These incorporations protect against any theoretical vulnerabilities in the calculation that may arise without this level of transparency.
Binance’s PoR is unique in that it records user debt and collateral information, providing a broader representation of actual liabilities and further demonstrating that assets on Binance are collateralized 1:1. No other exchange provides as much detail in its PoR, and many lending exchanges do not include any information about user liabilities. In this way, Binance is setting the standard for PoR transparency.
Pillars of trust
The guiding principles that drive our approach to building trust by increasing transparency of user assets held on Binance are community, education, and a top priority on the security of user funds.
As the largest global exchange serving nearly 240 million users, we have a responsibility to be as transparent as possible when it comes to how we handle user funds. Our PoR embodies this commitment, consistently demonstrating that we have over 100% backing for user holdings across 35 of the largest digital assets tracked by the system.
Building with the community
We believe in the fundamental importance of transparency across the industry. Early in the development of our PoR, we made the decision to open source the code to help with wider adoption. Open sourcing has numerous benefits, including helping others in the industry improve their PoR mechanisms for the benefit of all. We are frequently contacted by researchers and community members who have identified potential weaknesses or improvements that can be made. Whether it’s security auditing firms highlighting potential vulnerabilities or researchers from the Ethereum Foundation identifying theoretical issues that can arise from logging user liabilities, we are always ready to quickly improve and correct our PoR methodology to ensure it remains the best in the business.
Continuing education
Raising awareness of Proof of Reserves is critically important, not just for our platform, but for the entire crypto community. The original vision for Proof of Reserves emphasized transparency, accountability, and trust within the ecosystem. By fostering a deeper understanding of PoR principles and technology, the crypto community can help prevent the types of collapses that have plagued the industry in the past.
Our PoR website and Binance Academy offer a variety of educational resources tailored to suit all skill levels. From comprehensive articles that break down more complex concepts like ZK-snarks to easy-to-understand glossaries of crypto terms, we aim to break down the fundamentals. By helping our community understand Proof of Reserves, we can contribute to the overall resilience and credibility of the crypto ecosystem. To date, over 100 million users have accessed our PoR portal.
Prioritizing the security of user funds
The PoR is an important part of our commitment to the security of our users’ funds, clearly demonstrating that users’ assets are protected and held responsibly. This approach to ensuring the security of users’ funds is part of our DNA. In 2018, we established the SAFU Fund to assure our users that we will protect their assets in unexpected situations. We always put our users first, there is no higher priority.
Binance’s Proof of Reserves (PoR) system is a tangible testament to our commitment to the security and transparency of our users’ funds. Over the past two years, even amidst market volatility and withdrawal spikes, Binance has consistently demonstrated the reliability of our platform, processing high volumes of withdrawal requests due to the 1:1 collateralization of users’ holdings. By continually improving our PoR technology and incorporating industry-first solutions such as zk-SNARKs and liability representation, we ensure that the system works to foster greater trust within and outside the global crypto community. PoR is not just for show to the community, it is a real representation of the responsible management of Binance users’ funds.
