Proof-of-Reserve: Binance's little bluff

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Thursday, December 8, 2022

‍The exchange platform has just published a report from Mazars certifying its reserves. Problem: the audit only concerns reserves in bitcoins and is "non-committal".‍

In the 7-page document, the French company, which enjoys a strong reputation but not in Web3, confirms that Binance did indeed have just over 575,742 bitcoins ($9.7 billion) at 22 November.

In a tweet, CZ welcomed the report explaining that the company was totally "transparent".

Except that the report actually raises more questions than it answers.

👉 1/ Firstly about the way the audit was carried out. Mazars did not audit Binance's accounts directly, but relied on data provided by the platform without having access to the wallets.

👉 2/ What about the rest of the reserve? The audit in fact only covers Binance bitcoins and not the other crypto reserves. CZ has indicated that the rest of the reserve will be screened as it goes along, without giving a specific date.

👉 3/ Why is the audit not "binding" for Mazars? In the document, the firm states that its work does not constitute a "guarantee", in other words the firm does not commit its legal liability on the case. "The fact that Mazars is only certifying the audit of the reservation shows that it is not complete", explains a competitor, who adds: "They must not have had access to all the elements."

According to our information, the French firm did not audit all the reservations and did not want to commit itself with the report, in particular because of Binance's very complex organisation. "It's hard to get your head around it", says a source in the company. When contacted, Binance has not yet responded to our questions.

This analysis is not investment advice. It has been prepared without taking into account your personal situation, particularly your financial situation, risk profile, and investment objectives.

Before investing in any product, investors should fully understand the risks involved and consult their own legal, tax, financial, and accounting advisors.

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