Following the collapse of the FTX exchange, which reduced customers’ trust in exchanges, the Binance crypto exchange aims to rebuild customers’ faith in the crypto market by disclosing its financial information in a “Proof of Reserve.”
According to a news report from The Wall Street Journal, financial experts claim there are loopholes in Binance’s published data.
While Binance has stated that it is financially healthy, there is still a lack of transparency in the company’s finances. Douglas Carmichael, an accounting professor at Baruch College in New York told investors not to be satisfied with Binance’s published reserves because it is not comprehensive enough to answer all their questions.
According to the report, the reserves published by the accounting firm, Mazars, is a five-page letter and not an audit report that addressed the efficacy of the company’s internal financial reporting procedures.
The letter, according to the article, neither offered an opinion nor a certain conclusion, therefore Mazars wasn’t endorsing the disclosed figures.
Another concern raised in the reserve was the absence of total assets or total liabilities that were not included in the report. Instead, it was restricted to just bitcoin liabilities and assets.
In addition to the above issues, there are also indications Binance failed to fulfill its 1:1 ratio of reserves to customer assets because the total bitcoin liabilities cited in the Mazars letter were 3% greater than the bitcoin assets that were included within the scope of the report.
Disclosure of Proof of Reserves
Crypto exchange platforms are typically required to follow certain regulations and standards when it comes to financial transparency.
The recent tensions in the crypto space have highlighted the importance of such transparency, as it can help to build trust among users and maintain the integrity of the broader crypto ecosystem.
Huobi, a digital currency exchange, offering margin trading, lending, and other financial services disclosed its assets to restore customers’ confidence in its platform.
According to the report, Huobi’s total assets are valued at $3.5 billion, with Bitcoin accounting for 37,000, Ethereum accounting for 274,000, Tether (USDT) accounting for 820,000,000, and Tron (TRX) accounting for 9.7 billion.
Kraken exchange has also revealed its holdings in its reserve audit as a means of pledging its commitment to a higher level of transparency in the blockchain industry.
While exchanges demonstrate their commitment by publishing their reserves, Grayscale Investment stated on Twitter that it is unwilling to share details about its reserves.
[NEW TODAY] Due to recent events, investors are understandably inquiring deeper into their crypto investments. In this thread we’ve compiled additional information about the safety and security of the assets held by our digital asset products. https://t.co/MvTfUoK4o6 🧵
— Grayscale (@Grayscale) November 18, 2022
