It all started last month when Binance released proof of its reserves after the collapse of FTX. The exchange allowed its clients to verify their assets as well as their net worth through a Merkle tree. Only, for many financial experts, this report was useless, because it does not include liabilities. The latter have therefore launched alarm signals to denounce this state of affairs.
Finance Experts Oppose Binance Report
On December 7, the international audit company Mazarsunveiled its audit report on the reserves in Bitcoins of Binance. In this report, it was mentioned that Binance controls $9.7 billionthat is 575,742.42 Bitcoin. Mazars immediately revealed that the exchange Binance is 101% guaranteed.
In response, accounting and financial specialists consulted by The Wall Street Journal noted shortcomings in the proof of reserves presented by Binance. Indeed, they have not been shy about raising red flags about the finances of the crypto exchange.
Among the shortcomings noted, there is the lack of information on the structure of the company. Indeed, Binance Chief Strategy Officer, Patrick Hillman was unable to name the parent company of the exchange. He justifies this by the fact that Binance is going through a structural reorganization company for two years.
In addition, the lack of information on the quality of internal controls appears as a second failing noted by a former investment manager. He also deplores the worrying management of asset liquidations from Binance in an effort to cover margin lending. Finally, for the member of the Financial Accounting Standards Board (FASB)the Mazars audit report does not give enough confidence to investors.
Furthermore, the 1:1 ratio reserves to customer assets has not been reached. For good reason, Mazars in its audit excluded assets loaned to users through loans or margin accounts. As a result, Binance’s proof of 97% guaranteed reserves turns out to be erroneous. .
Conclusion
In order to ensure transparency within its ecosystem, Binance has audited its accounts. At the end of it, the international firm Mazars guaranteed 101% proof of reserves to Bitcoin from Binance. This caused a flurry of exits from financial and accounting experts who raised red flags on each failure noted.
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