Binance Proof-of-Reserve Reconfirmed by CryptoQuant

CryptoQuant, a blockchain analytic platform has released a report to ascertain the result of the proof-of-reserve study carried out by leading digital assets service provider Binance. According to the CryptoQuant report, all Binance reserves are accounted for. The analytics firm confirmed that the Binance stablecoin reserve is not displaying any FTX-like behaviors.

“The report shows Binance’s BTC liabilities (customers deposits) are 97% collateralized by the exchange assets. Collateralization increases to 101% when the BTC lent to customers is accounted for,” and “Additionally, Binance has an acceptable ‘Clean Reserve,’ which means its own token, BNB, is still a low proportion of its total assets.”

Notably, the implosion of the FTX Derivatives Exchange led to the need for reassurance in the crypto industry. Consequently, users needed to be convinced that their assets in centralized exchanges (CEX) are secured and fully backed.  This problem pushed many exchanges including Binance into conducting proof-of-reserve studies.

Community Members Disbelieve Binance Proof-of-Reserve

As per a published statement by auditing firm Mazars Veritas, Binance’s Bitcoin was found to be collateralized at a rate of 101%, and the same for many other listed digital assets on the platform. Much to the disappointment of Binance, many community members frowned at the result citing that it was premeditated. Some said it was not a full audit, instead, it was an “agreed-upon procedure.”

John Reed Stark, the former chief of the Securities Exchange Commission’s Office of Internet Enforcement, stated that the proof-of-reserve revealed several red flags to be wary of. One such red flag is that Binance’s proof-of-reserves reports did not directly or indirectly address the effectiveness of the internal financial controls.

Also, the report failed to quantify the platform’s assets and liabilities. Kraken’s Chief Executive Officer(CEO), Jesse Powell criticized Binance for providing wallet addresses thereby failing to incorporate liabilities.

It was concluded that Mazars did not do a great job in boosting investors’ confidence citing that only a little information was provided especially about the exchange’s methods of liquidating assets to sort out margin loans. 

Binance has been in a lot of messy situations this week following the release of its proof-of-reserves. As much as $5 million has been suddenly withdrawn from the exchange as users fear an impending liquidity crunch like in the case of FTX.