The Binance Six Principles

The first of the Binance big six was being risk averse with user funds. This was the big mistake that FTX made, using user funds as collateral elsewhere.

This leads to the second principle that exchanges should never use their own native token as collateral. Native tokens provide the foundations of the exchange blockchain ecosystem, so shouldn’t be deployed elsewhere. It was concern over the FTT token that catalyzed the FTX collapse.

Disclosing live proof of assets or proof-of-reserves is the third commitment by Binance. The company stated it was working on a “Merkle tree proof of funds that we will share with the community in the next few weeks.” On Nov. 10, Binance shared its crypto reserve holdings, however, they were heavily weighted towards its own stablecoin, BUSD, and native token, BNB.

Keeping strong reserves is also paramount to protecting users. Binance is an industry leader in this with its $1 billion SAFU fund.

Principle number five was avoiding excessive leverage. This has led to the downfall of many crypto lending platforms this year – offering highly leveraged products on highly volatile assets to inexperienced retail traders.

Finally, CZ said strengthening and enforcing security protocols was key to transparency. “All exchanges should have strict KYC and AML measures in place,” he said.

(By Martin Young)