Binance’s Proof-of-Reserve Report Shows Almost All Customer Funds Backed by Exchange Assets, Despite Criticism

The report, which was carried out by an independent auditing firm known as Mazars, demonstrated that Binance’s Bitcoin (BTC) liabilities, also known as customer deposits, were collateralized to a degree of 97% by the exchange’s assets at the time that the audit was carried out (November 22, 2022).

When one considers the BTC loaned to other clients, the level of collateralization rises to 101%. Some market analysts have voiced their disagreement with the findings of the PoR report, although the report had positive outcomes. An issue that has been brought up is that Mazars, the external auditor, did not express their professional opinion or assurance conclusion, nor did they make any representations regarding the appropriateness of the Agreed-Upon-Procedure (AUP) that was used in the audit. This is one of the issues that has been brought up. This indicates that the auditor did not offer any formal assessment of the dependability of the audit process or the accuracy of the reported results.

Because of this lack of assurance, the level of confidence that can be placed in the findings of the PoR report is reduced, which may be cause for concern for some stakeholders. A comparison was made between the liabilities reported by Binance and CryptoQuant’s on-chain metric, Binance BTC Reserve data, which estimates the deposits made by Binance’s customers. This comparison was made to evaluate the data contained in Binance’s PoR report. According to the findings of the analysis, Binance’s reported liabilities were extremely close to the estimated 99% level. On-chain data also suggests that Binance’s Ethereum (ETH) and stablecoin reserves are not exhibiting “FTX-like” behavior.

The data suggest that the exchange has an acceptable “Clean Reserve,” which indicates that the proportion of its token, BNB, to its total assets, is still relatively low. It is essential to emphasize that this analysis should not be construed as a favorable opinion of Binance as a company, the ecosystem of the Binance Smart Chain/BNB networks, or the BNB token. All of these things are important to keep in mind. Instead, it is merely an indication that the quantity of BTC that Binance claims to hold as liabilities at the time of the PoR report is consistent with the data stored on the blockchain. In recent years, there has been an increase in the demand for Proof-of-Reserves (PoR) among cryptocurrency exchanges, which the failure of FTX has exacerbated. Since then, several different exchanges, including Binance, have started offering Proof-of-Reserve services, and the outcomes can be followed in real-time on this Proof-of-Reserve dashboard.

Because Binance is the largest cryptocurrency exchange in terms of trading volume and also one of the largest in terms of customer deposits, its Proof of Reserves report is of particular significance to the cryptocurrency industry. According to the charts provided, which show BTC reserves and spot trading volume for various exchanges, it is abundantly clear that Binance’s BTC reserves have grown more quickly since late 2020 and surpassed those of many other exchanges. Binance is far and away the market leader in the volume of daily spot trades.