Binance’s proof-of-reserve audit has already raised red flags, with some experts claiming it isn’t doing enough to satisfy worried users.
so-called proof-of-reserve report good The report was released on December 7 in the form of a 5-page PDF document prepared by the South African branch of global accounting firm Mazar. The report was based purely on “agreed-processes (“AUP”) engagements, and is therefore limited in scope.
the report showed that Binance’s bitcoin reserves have a 101% collateralization ratiosuggesting that the exchange has more than all the BTC needed 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 not indicated that it plans to do so.
Not enough to satisfy users
According to accounting and finance experts The Wall Street Journal Spoke With this, the information that Binance has provided so far will not be enough to satisfy users.
“I can’t imagine that this answers all the questions an investor would have about the adequacy of collateralization,” said Douglas Carmichael, an accounting professor at New York’s Baruch College.
Carmichael, who is also the former chief auditor of the US Public Company Accounting Oversight Board, said the report was intended to show clients that the digital assets included in the report “are collateral, exist on the blockchain and are Binance in control of.”
“It seems to be the main thing,” he said, adding that he sees it as “a gross misrepresentation to call it an audit.”
The same Wall Street Journal report reiterated that Binance’s proof-of-reserves report was “not an audit report,” and that it “did not address the effectiveness of the company’s internal financial-reporting controls.”
The article also pointed out that Mazars also wrote in it that it “expressed no opinion or made any conclusive findings.” This essentially meant that the firm was “not vouching for the numbers,” wrote The Wall Street Journal.
Binance Basically announced its proof-of-reserve system on 25 November, and used the term “audit results” to refer to the numbers.
Need more information
Hal Schroeder, a former Financial Accounting Standards Board member who now teaches accounting at Rutgers University, told The Wall Street Journal that the proof-of-reserves report from Mazar is of little use without more information that Binance is providing to its internal investors. How to conduct operations.
“We don’t know how good Binance’s system is for liquidating assets to cover any margin loans. And we do know that in the US, even with all the good systems in place, banks sometimes have to- has ever been caught unbalanced,” Schroeder said.
“In light of what we’ve seen in the Bahamas, I don’t want to conclude that all systems are that good,” he said, referring to Bahamas-based crypto exchange FTX.
Twitter users expressed concern
On Twitter, some users also pointed out weaknesses in the Binance report. Among them was John Reed Stark, a veteran US Securities and Exchange Commission (SEC) employee who founded the agency’s Office of Internet Enforcement.
“Binance’s ‘Proof of Reserves’ report does not address the effectiveness of internal financial controls, does not express an opinion or assurance conclusion and does not vouch for the numbers. I worked in SEC enforcement for 18+ years. That’s how I define a ‘red flag,'” Stark wrote in a Tweet on Sunday.
Responding to the tweet, none other than Jesse Powell, CEO of crypto exchange Kraken, said that the most worrying part of the report is that it appears to be “more of an attempt to prove collateral rather than prove reserves”.
Powell said, “The “collateralized” accounting trick is exactly how FTX played it’s solvent as well.”
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