The world’s largest crypto exchange Binance has been scrambling to mitigate FUD as users have issues with the latest Binance’s reserves report.
Transparency and regaining consumer trust have risen to the top of the industry’s agenda in the wake of Sam Bankman-FTX Fried’s exchange’s demise. A study commissioned by Binance and issued on December 7 by the auditing company Mazars seems to demonstrate that the exchange’s bitcoin holdings are completely collateralized. However, the report does not provide a whole picture.
Although the report has been described as an audit in some news, it is not. The report is an AUP (Agreed Upon Procedure), which is neither an assurance engagement or a thorough audit.
The report itself explicitly states:
“This AUP engagement is not an assurance engagement. Accordingly, we do not express an opinion or an assurance conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported”
In other words, Mazars isn’t expressing a lot of trust in the exchange’s finances by the norms of the profession. Mazars is only comparing a set of pre-established standards. Even if this report covered all of Binance’s assets, not only BTC, BTCB, and BBTC, it would not constitute a health check for the company’s finances.
The choice to combine BTC and Binance’s wrapped forms (BBTC and BTCB) raises further questions. The report states that they will “not differentiate” between them and they will be “assessed interchangeably”. These assets require independent reports of their own in order to be fully confident.
More Experts Dig Into Binance’s Reserves Reports
According to a former investment manager and member of the Financial Accounting Standards Board (FASB), the audit firm Mazars’ report does not inspire investors with confidence regarding the exchange’s financial standing because it is devoid of details pertaining to the effectiveness of internal controls and how Binance’s systems dispose of assets to pay off margin loans.
The lack of details on Binance’s business structure was another issue that the newspaper’s sources identified as a concern. Patrick Hillmann, chief strategy officer of Binance, was reportedly unable to identify the parent firm of Binance since Binance has been through a corporate restructuring for over two years.
Additionally, differences in the aggregate Bitcoin liabilities were emphasized. The exchange’s proof of reserves shows that Binance was 97% collateralized, excluding assets lended to users through loans or margin accountS, indicating that the 1:1 ratio of reserves to customer assets was not achieved.
