Binance’s emergency insurance fund is largely comprised of a cryptocurrency tied to the company itself, according to on-chain data.
The two addresses associated with the fund show that its BNB tokens account for 44% of its reserves.
The Wrong Type of Insurance?
As shared by on-chain analyst Willy Woo on Twitter, the Secure Asset Fund for Users (SAFU) includes $367 million worth of BNB. The remainder is made up of Binance’s dollar-pegged stablecoin BUSD ($300 million) and Bitcoin, the largest cryptocurrency by market cap ($270 million).
These balances are verifiable through public blockchain data, at Binance’s Bitcoin and BSC addresses respectively. The exchange soon plans to implement a proof of reserves system verifying its total exchange assets as well.
Nevertheless, Woo found Binance’s reliance on BNB within the reserve to be concerning.
“While I commend Binance for having such a fund, there’s no sense putting incidence-correlated BNB in there,” he said. “How would we feel about FTX having an insurance fund filled with FTT?”
The SAFU was created in 2018 to protect Binance users’ funds in the event of a catastrophe. After slowly being funded through trading fees collected by Binance, it formally opened in January 2022 at a valuation of $1 billion. Crypto market declines have since knocked its spot market valuation to roughly $837 million.
These funds still roughly match the $68 million in Binance’s proof of reserves today, combined with the estimated $800 million within Binance Custody. But further volatility, particularly in BNB, could take SAFU’s valuation far lower when it matters most – especially since its success is directly related to Binance’s stability and success.
BNB vs FTT
BNB gives holders trading fee discounts when exchanging crypto at Binance. It is similar to FTX’s FTT token in this manner, but with a much larger market cap.
FTT once comprised a significant chunk of Alameda Research’s total assets, as revealed in its leaked balance sheet earlier this month. The trading firm went down with its sibling exchange on November 11th after Binance CEO Chanpeng Zhao threatened to dump the token on the market. Its price has since collapsed from above $22 on November 6th to below $2 at writing time.
The Solana Foundation revealed on Monday that it held over $70 million in FTT exposure earlier this month. Its remaining tokens, which are now worth far less, are still trapped inside FTX.