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Cryptocurrency exchange Binance is now locking up collateral for tokens issued on BNB Chain (formerly Binance Smart Chain) in a dedicated wallet before minting the tokens.

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A spokesperson for Binance told Bloomberg the exchange has made a new partially-automated process to make sure tokens issued on BEP20 protocol are "always transparently backed."

"We are now simply showing it [collateral] on-chain in dedicated wallets where it will remain until it may be required," the spokesperson said.

Research analyst at blockchain data firm Kaiko, Conor Ryder, says the new mechanism isn't ideal as there's still "potentially an element of trust that needs to be placed in Binance and its management of these reserves."

Binance Set to Pay Penalties to Deal with US Regulators: WSJ

In mid-January, Binance admitted it had commingled its clients' funds with collateral for tokens issued by the exchange on BNB Chain. The exchange's wallet marked as "Binance 8" contained way more collateral than it needed for almost half of the 94 tokens (e.g., UNI, MATIC, DAI) Binance issues on the blockchain.

A spokesperson for Binance acknowledged the exchange had moved the collateral into the wallet "in error and referenced accordingly on the B-Token Proof of Collateral page." However, it is still unclear when exactly Binance identified the issue.

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