Binance proof of reserves concerns the Bitcoin community

• Binance’s revised proof-of-reserve report fails to ease concerns as analysts point out red flags in the publication.
• Binance management has dismissed the concerns with assurances that the exchange’s finances are solid.

Binance, the largest cryptocurrency exchange by trading volume, has published its revised proof-of-reserve (PoR) report following an audit conducted by global audit, tax and advisory firm Mazars.

While the report shows that Binance’s Bitcoin (BTC) customer reserves are over-secured, it has failed to completely quell concerns about the exchange’s financial health.

A former member of the Financial Accounting Standards Board (FASB) and chief investment officer consulted by the Wall Street Journal (WSJ) claims that the reserves revealed by the audit reveal several red flags in Binance’s finances.

According to the accounting and finance specialist, a red flag is that the document released by Mazars shows a difference between the total Bitcoin liabilities and assets of Binance. The PoR shows that Binance was 97 percent secured, excluding assets lent to users through loans or margin accounts.

Gap in PoR

Specifically, as of November 23, Binance had 597,602 (worth about $9.68 billion) BTC in liabilities to 575,742 BTC (worth about $9.43 billion) in assets, a difference of 21,860 BTC (or about $245 million ). This indicates that the 1:1 ratio of reserves to customer assets that Binance claims was not achieved.

A Binance spokesperson clarified that the 3 percent gap in the PoR is due to BTC lent to users who may have used tokens outside the scope of the report as collateral in response to similar concerns raised by Kraken CEO Jesse Powell. Exchange. According to the spokesperson, Binance’s BTC reserve will be 101 percent secured if the other assets are taken into account.

Meanwhile, other concerns raised by the former FASB member include that the audit report lacks information related to the quality of Binance’s internal controls and how the exchange’s systems liquidate assets to cover margin loans.

The lack of information about Binance’s corporate structure was also noted as a significant red flag. According to the WSJ, Binance’s Chief Strategy Officer Patrick Hillman was unable to name Binance’s parent company as the exchange has been undergoing a reorganization of the company for almost two years.

Binance’s collapse could be catastrophic for the crypto market

The market’s attention is heavily focused on Binance due to the significant market share that the exchange has. Analysts have noted that if Binance were to run into financial trouble, it could be worse than the collapse of the FTX exchange that wiped out over $10 billion of investors’ funds.

Regardless, Binance CEO Changpeng ‘CZ’ Zhao has continued to reassure the market that the exchange is in a very healthy position. He points out that the exchange has practiced financial prudence and transparency that has allowed it to be among the few crypto firms still hiring while many others are laying off their workforce.