by Mainstream media have reported that the Binance Proof-of-Reserves audit was not actually an audit. Others have joined the fray. Binance is fighting back.
A recent one report in the Wall Street Journal states that Binance is trying to reassure investors, but that its finances remain a mystery. Here the mystery refers to proof-of-reserve audit performed by Mazars.
Given that the WSJ printed such an article, it means that the ensuing FUD could prove quite difficult for Binance to fend off. Also, when such a mainstream platform publishes something like this, many other news platforms are likely to follow suit. CoinTelegraph, Investing.com and Zero Hedge among others have already done so.
Proof-of-Reserves report
The problem seems to be that some experts have stated that the Proof-of-Reserves report carried out by Mazars is not actually an audit. The report was carried out using a methodology called “agreed procedure” (AUP).
Some say this is a problem because the AUP is how Binance wanted the report done rather than a full audit where the auditor decides how to conduct the process.
The WSJ article highlighted a section of the report called “report details” where the actual amount of bitcoin held by Binance did not match. While the “customer liability report balance” showed 597,602, the “asset balance report” showed 582,486 – a difference of approx. 3%.
Ex-CEO of Kraken joins the fray
Jesse Powell, ex-CEO of Kraken joined the fray when he tweeted that Binance had admitted to being “insolvent” in terms of “assets owed vs controlled tokens”. He accused Binance of using the same “security trick” as FTX.
Binance Customer Support responded to Powell’s tweet, saying that he had not understood and that “more harm than good” could be done by the charge he had issued. They continued:
4-The 3% gap is due to BTC lent to customers, through the margin or loan programs, who may have used tokens outside the scope of the report as collateral. If we take these into account (in other words, if we didn’t give these BTC loans), we would be 101% secured
— Binance Help Desk (@BinanceHelpDesk) 8 December 2022
To which Powell responded:
We are talking about 2 different things. PoR is not proof of security. The question is whether you have 1:1 BTC in custody for every BTC in someone’s balance (including loans and margin). If you lend BTC, that BTC comes from somewhere.
— Jesse Powell (@jespow) 8 December 2022
Binance support then tweeted the following with additional clarifying tweets:
3-It is important to point out that “negative balances” are funds borrowed by customers who have chosen to use margin and loan products. All loans are fully secured to over 100%, and are subject to other risk management protocols, such as automatic liquidation, if necessary.
— Binance Help Desk (@BinanceHelpDesk) 8 December 2022
Get your money from Binance?
Travis Kling, CIO of Ikigai Asset Management, advised investors to get their money out of Binance, saying he had no hard evidence to say so, but added that he also had no hard evidence on FTX before it went down .
However, he said in his latest tweet on the subject that “I pray Binance passes with flying colors.”
Meanwhile, CZ of Binance continued to fight back against what he saw as FUD. He made a cryptic comment that perhaps alleged that some of the mainstream media was funded by someone he was unwilling to name:
smh, some media still work for…
— CZ 🔶 Binance (@cz_binance) 12 December 2022
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial or other advice.
