Investors Not Satisfied with Binance’s Proof-of-Reserves Audit – Next Exchange to Collapse?
Binance’s proof-of-reserves audit has already raised red flags, with some experts claiming it is far from enough to satisfy worried users.
The so-called proof-of-reserves report was released on December 7 in the form of a 5-page PDF document prepared by the global accounting firm Mazar’s South African branch. The report was based purely on an “Agreed-Upon Procedures (“AUP”) engagement,” and is therefore limited in scope.
The report showed that Binance’s bitcoin reserves have a 101% collateralization ratio, suggesting that the exchange has more than all of the BTC it needs to cover customer deposits.
Binance is a private company – or rather a large group of companies operating under the Binance brand – and is therefore not required to publish audited financial statements. It has also never indicated that it plans to do so.
According to accounting and finance experts The Wall Street Journal spoke with, the information Binance has so far provided will not be enough to satisfy users.
“I can’t imagine it answers all the questions an investor would have about the sufficiency of collateralization,” said Douglas Carmichael, an accounting professor at New York’s Baruch College.
Carmichael, who is also a former chief auditor of the U.S. Public Company Accounting Oversight Board, added that the report said its purpose was to show customers that the digital assets covered in the report “are collateralized, exist on the blockchain(s) and are under the control of Binance.”
“That’s the main thing it seems to speak to,” he said, while adding that he sees it as “a gross misrepresentation to call this an audit.”
The same Wall Street Journal report went on to reiterate that Binance’s proof-of-reserves report “wasn’t an audit report,” and that it
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