Binance is one of the largest cryptocurrency exchanges. There are threats from bad actors, who can affect the operation of digital exchanges that also affects users. When an exchange gets hacked, holders of coins who have left funds on the exchange usually have no way of getting their digital assets back. This is why a form of mitigation to be able to recover funds is becoming important. The Mt. Gox hack wiped out that digital exchange of 850,000 BTC (Bitcoin). To this date there has been no formal settlement with former coin holders.
Binance provides its own security measure to address this problem. It is called the SAFU (Security Asset Fund for Users). It is an emergency insurance fund announced back in July 3, 2018.
According to Binance:
“To protect the future interests of all users, Binance will create a Secure Asset Fund for Users (SAFU). Starting from 2018/07/14, we will allocate 10% of all trading fees received into SAFU to offer protection to our users and their funds in extreme cases. This fund will be stored in a separate cold wallet.”
The story of SAFU goes back to a time Binance CEO Changpeng “CZ” Zhao tweeted “funds are safe”. It became a regular message from CZ to assure exchange users on their status. Later a content creator named “Bizonacci” uploaded a video called “Funds Are Safu” on YouTube. It went viral and the term “Safu” instead of safe has stuck ever since.
This insurance fund collects a percentage of fees from transactions on the exchange. This would be used in the event of a serious breach that compromised the funds stored by the system. It is also stored in secure hard wallets away from online access to hackers. The fund is released in the event of an emergency only, so it continues to accumulate unless otherwise.
These are good measures to provide customers if you are a digital exchange. However, if you are the customer you might consider not storing your coins or tokens on an exchange because of the risk. Since exchanges do not guarantee the safety of your funds, if anything should happen like a software glitch or hack, your funds should they get stolen cannot be fully reimbursed by exchanges. Depending on jurisdiction, you can only pursue a lawsuit if there is any responsibility on the part of the digital exchange to reimburse you based on the policy agreement. Most of the time there is no obligation by the exchange, so storing funds in their custodial wallet is at your own risk.
The best solution is to have your own SAFU to store your funds. That means a hardware wallet that is offline in your own possession. This also gives you control of your own private key, something that digital exchanges don’t provide. Using online wallets (e.g. Exodus, Metamask, MEW, etc.) are also options, but since they are online they are still at risk from being attacked. Whichever wallet a user chooses, what is important is to keep the private key and seed phrase secure.