Audit of Binance’s Proof-of-Reserves Indicates That Assets Are Overcollateralized

Mazars’ proof of reserves study indicates that Binance has sufficient assets to cover client withdrawals.

The first proof of reserves (POR) audit report for Binance showed that the business has adequate funds for mass client withdrawals and that consumers had provided sufficient margin to secure leveraged positions.

Mazars’ South African division completed the PoR audit on November 22, 2022. Multiple approaches were used to confirm that Binance has sufficient funds to fulfil consumer withdrawals.

Mazars requested Binance management to transfer cash from a certain wallet address in order to verify ownership of the private key. The auditing company checked the transactions on Etherscan and BSCScan, ensuring that the addresses involved were indicated as belonging to Binance.

Mazars then saw Binance’s management properly extracting customer liability information utilizing unique internal code scripts. These reports detailed the amount of money owed and received from consumers. 

Crypto The majority of Twitter’s responses to the Binance audit were favourable. However, Mazars, a relatively obscure business, was criticized for being chosen as the auditor by Binance.

In addition, Binance is only one of several cryptocurrency markets that is not a publicly traded company. This means they are exempt from the financial reporting regulations of countries like the United States. When investor trust is at an all-time low after the failure of many large crypto enterprises in 2022, having audits released on a regular basis might provide the market with an aura of respectability.

FTX failed because it reportedly misappropriated customer cash, leaving it unable to fulfil withdrawals at a key period.

Proof of reserve audits enhance openness, but they do not prevent abuse of cash between audits. Regulators would need to implement additional restrictions to guarantee that exchanges maintain minimum customer balances comparable to those of conventional Wall Street banks.

Also Read: Australian CBDC’s Unexpected Involvement Could Hurt Banks

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