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Binance SAFU Insurance Fund is 44% Backed by its Own Token

Binance’s emergency insurance fund consists largely 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 make up 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 of BNB. The rest consists of Binance’s dollar-pegged stablecoin BUSD ($300 million) and Bitcoin, the largest cryptocurrency by market capitalization ($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 that also verifies its total exchange assets.

Nevertheless, Woo found Binance’s reliance on BNB within the reserve to be worrisome.

“While I commend Binance for having such a fund, it makes no sense to put incidence-correlated BNB into it,” he said. “How would we feel about FTX filling an insurance fund with FTT?”

The SAFU was created in 2018 to protect Binance users’ funds in the event of a catastrophe. After being slowly funded by trading fees collected by Binance, it formally opened in January 2022 at a valuation of $1 billion. Declines in the crypto market have since pushed its spot market valuation to around $837 million.

These funds still roughly correspond to the $68 million in Binance’s proof of reserves today, combined with the estimated $800 million within Binance Custody. But further volatility, especially in BNB, could take SAFU’s valuation much lower when it matters most – especially since its success is directly related to Binance’s stability and success.

BNB vs FTT

BNB discounts holders on trading fees when they exchange crypto at Binance. It is similar to FTX’s FTT token in this way, but with a much larger market cap.

FTT once made up a significant portion of Alameda Research’s total assets, as revealed in its leaked balance sheet earlier this month. The trading firm fell with its siblings on November 11 after Binance CEO Chanpeng Zhao threatened to throw the sign on the market. Its price has since collapsed from above $22 on November 6 to below $2 at the time of writing.

The Solana Foundation revealed Monday that it held more than $70 million in FTT exposure earlier this month. The remaining tokens, now worth much less, are still trapped in FTX.

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