Mazars' recent Binance “proof of reserve” report only covers a small set of financial data, raising fresh questions about Binance's ability to meet obligations

Crypto exchange has begun releasing data to shore up confidence following collapse of FTX — Crypto's Crash Has Been Swift but Largely Self-Contained.

Wall Street Journal 2022-12-12 Jonathan Weil

Context & Ripple Effects

Binance had begun publishing reserve data after FTX’s collapse, including a BTC reserve-ratio disclosure and Mazars’ finding of 101% bitcoin collateralization. The limited financial scope identified here shows why that disclosure did not settle broader questions about the exchange’s obligations.

The concern quickly became more consequential when Mazars paused crypto-client work and its Binance report was later removed. Crypto.com had also relied on Mazars for a one-to-one backing report, tying confidence in multiple exchanges to the same assurance provider.

First-order effects

Binance’s proof-of-reserves release gives customers evidence about selected assets but not a full basis for assessing whether the exchange can meet all obligations.
Mazars’ subsequent withdrawal from crypto work deprives Binance of the external report it had used to support its reserve disclosures.

Second-order effects

Crypto.com and other Mazars crypto clients face renewed scrutiny because the firm’s pause weakens the comparability and durability of their reserve attestations.
Exchanges seeking to restore confidence after FTX must offer disclosures that address liabilities as well as asset balances, rather than relying on narrow reserve snapshots.

Third-order effects

The episode points to a wider crypto-legitimacy problem: voluntary proof-of-reserves systems struggle to function as durable trust infrastructure when their scope and external assurance are disputed.
If customers and market participants demand fuller disclosures, crypto exchanges will increasingly compete on the credibility of their reporting frameworks, not only reported reserve ratios.

The trend: Post-FTX crypto exchanges are moving toward more transparent reserve reporting, but limited attestations are exposing the gap between asset snapshots and full financial accountability.

Discussion

@tree_of_alpha @tree_of_alpha on x
Little PSA: BUSD is only issued by Paxos on the Eth chain, as an ERC-20. All other forms of BUSD, including BSC BUSD, are managed by whoever issues them. If your reasoning is “I'm holding BUSD because it is issued by Paxos and regulated”, this only applies to the ERC20. https://t…
@johnreedstark John Reed Stark on x
Binance's “proof of reserve” report doesn't address effectiveness of internal financial controls, doesn't express an opinion or assurance conclusion and doesn't vouch for the numbers. I worked at SEC Enforcement for 18+ yrs. This is how I define “red flag. https://www.wsj.com/...
@tradermagus @tradermagus on x
Pls CZ stop tweeting
@awawat_trades @awawat_trades on x
No amount of Binance FUD will make me use Kraken, sorry Jesse
@twobitidiot Ryan Selkis on x
GM. Web3 centers around wallets, not exchanges. https://twitter.com/...
@travis_kling Travis Kling on x
Not trying to fearmonger but it has to be said. If you have assets on Binance or Binance US, take them all off now. Don't wait. Also, if you are holding BUSD, you should sell that immediately. This is coming from a guy that lost a ton on FTX bc I misjudged the exact same setup.
@tree_of_alpha @tree_of_alpha on x
Mazars Releases KuCoin's Verification PoR Report, Concluded That BTC, ETH, USDT and USDC Reserves Are Overcollateralized Glad every Crypto exchange is getting their report done by the same company.. hehe.. *sweats*
@priapusiq @priapusiq on x
🔥 Burn it all down. https://twitter.com/...
@obiexyz Obie on x
To reframe it, the biggest Crypto exchange in the world is choosing not to go for a Big 4 firm shows me: a) There are red flags that Big4 wouldn't let slide or b) They want a firm that is willing to “bend the rules” a bit more
@obiexyz Obie on x
If you're telling me reconciling your liabilities is “more difficult” than blockchain reserves that means that you haven't even been keeping track of customer deposits & loans (WHAT??) That's basically just a replay of the FTX claim of “we didn't keep track of it” https://twitter…
@smdiehl Stephen Diehl on x
Where is this company even headquartered? Nothing about this is normal. There are so many red flags. https://www.wsj.com/...
@obiexyz Obie on x
The Proof of Reserves is a huge step in the right direction. But stating that you have enough to cover everyones' balances then only auditing one half of the equation doesn't mean anything Your AUP should be comparing reserves against “depository liabilities” (customer deposits)
@obiexyz Obie on x
This brings me to Red Flag #1: If you're checking the health of your reserves you need to check how much you have in your assets (Reserves) Vs How that compares against depositor liabilities (since they owe you money should you decide to withdraw it from your account)
@murfski_ @murfski_ on x
I think there's less risk in having your coins kept on a self-custody wallet whilst this all blows over https://twitter.com/...
@crypto_mckenna McKenna on x
The Binance FUD is getting ridiculous and for it to be shilled by a prev PM is insane. Losing money makes people think in paranoid ways yes self custody is safer. But know this. If Binance goes down like FTX then crypto is finished for 5 years minimum. https://twitter.com/...
@iang_fc @iang_fc on x
All these financial industry experts are annoying with their pontifications that this is inadequate, we know better, you should be regulated. It's all hot air. When did they step up and design a governance pathway for the blockchain? When help? https://twitter.com/...
@obiexyz Obie on x
This tweet by CZ is also false. For context, a company (let alone an exchange) should have liabilities tracked and updated monthly at least, they should have been able to share that weeks ago. Liabilities are absolutely not harder. Ask people who work in Audit. Which I did. https…
@jespow Jesse Powell on x
Another misleading “PoR” AUP (not an audit) released today. Apparently, there is no consistent process used across exchanges. Again, the process strays far from the original spec.🤦‍♂️ 1. “interchangeable” assets 2. negative balances included 3. no signing 4. aggregation by “class…
@obiexyz Obie on x
Big Red Flag #2: French audit firm Mazars usually does smaller & regional companies. Why did Binance go out of their way to choose a midsize Accounting firm? They should've absolutely gone after Big 4 accounting (Deloitte/KPMG/EY/PwC), or even Top 10
@travis_kling Travis Kling on x
People in my comments: “Binance did Proof of Reserves” The Proof of Reserves: “Mazars said it performed its work using “agreed-upon procedures” requested by Binance and that “we make no representation regarding the appropriateness” of the procedures.” 🤡 https://www.wsj.com/...
@obiexyz Obie on x
1/ Mini thread on why this tweet by @cz_binance raised 3 big red flags to me. Proof or Reserves is cool n all but this showed me a few things that made me even more suspicious than before CZ is more than welcome to correct me & I'll delete this thread https://twitter.com/...
@jeffhorwitz Jeff Horwitz on x
In which @JonathanWeil notes that Binance's audit contains only three numbers and isn't actually an audit, then forces the company's chief strategy officer to acknowledge “we're parroting others' descriptions of this as an independent audit.” https://www.wsj.com/...
@wallstreetsilv Wall Street Silver on x
🧐 ... Binance is probably not safe. Anyone who has assets there is playing with 🔥. Figure out a safer place to store your assets ASAP. https://twitter.com/...
@colinwilhelm Colin Wilhelm on x
The Mazar's report in this piece isn't an audit, and Mazar's explicitly says the report “is not an assurance engagement”, meaning the firm doesn't state a conclusion beyond what Binance told them to look at. https://twitter.com/... https://twitter.com/...
@cz_binance @cz_binance on x
Based on our investigations so far, this appears to be just market behavior. One guy deposited funds and started buying. (Hackers don't deposit). Other guys followed. Can't see linkage between the accounts. 1/3 https://twitter.com/...
@binance @binance on x
This activity does not appear to be due to compromised accounts or stolen API keys; funds are SAFU. We will update this thread should there be any new information.
@binance @binance on x
We are aware of the abnormal price movements for certain trading pairs on #Binance, involving assets such as $SUN, $ARDR, $OSMO, $FUN and $GLM. Our team is investigating and taking appropriate actions in regards to the suspicious accounts.
@binancehelpdesk @binancehelpdesk on x
@coinmamba @cz_binance Your account was placed into withdrawal only mode. The decision was in response to threats you made to our CS, not related to our Twitter dialogue. We pulled together a team of over 20 case agents to try and help you. We are sorry it has come to this, but w…
@cz_binance @cz_binance on x
We are aware of the concept of too much intervention from the platform, “too centralized” attacks, etc. There is a balance to how much we should intervene. Sometimes, these happen in free market, and we need to let it play out. 🙏 3/3.
@coinmamba @coinmamba on x
Tweet deleted. But CT remembers.. https://twitter.com/...
@ys_3commas Yuriy Sorokin on x
@cz_binance ... the keys are not leaking from our side. We push users to use fast connect with Binance and work with your team closely. The majority of the users disappear after our support tries to reach out to them. We push everyone to reach out to local police and file claims.
@coinmamba @coinmamba on x
Yeap, @cz_binance just closed my Binance account because of my tweets. Not sure what to say. This is unacceptable and I'm sure most of you will agree with me on this..
@coinmamba @coinmamba on x
Hey guys. Unfortunately two days ago my Binance account got exploited through an API which I've created 2 years ago and haven't used since which I assumed I deleted but apparently didn't. It was used to make trades on low cap coins to push up the price to make profit.
@cz_binance @cz_binance on x
@Siopers12 @coinmamba We just discussed this internally. We may block all 3Comma access if they don't have good ways to fix API key leaks in their side.
@mikevanrossum Mike van Rossum on x
Pure speculation, but what I suspect happened is that the hackers who got ahold of the binance api keys (3comma breach) used them as part of bigger pump and dumps involving hundreds of people just there for pnd This way can get cash out undetected Sort of like a cex coinjoin http…
@coinmamba @coinmamba on x
Now that Binance closed my account I'm going back to trading on FTX!
@cobie @cobie on x
@coinmamba Where are you actually going to go though? Binance never processed my KYC and don't really know where im supposed to go now lmao. Back to Bitfinex? Bitmex??
@alderlaneeggs Marc Cohodes on x
The Ticks are getting closer https://twitter.com/...
@cz_binance @cz_binance on x
We temporarily locked withdrawals on some of the profiting accounts, which caused a lot of complaints on social media, all from different countries. 2/3 https://twitter.com/...
@mikealfred Mike Alfred on x
CZ just revealed his playbook. When he eventually locks withdrawals for all accounts, he will blame it on “market behavior” https://www.theblock.co/...
@cz_binance @cz_binance on x
@coinmamba We have more than 20 people investigating. I now have knowledge of the size of your loss, Ip address, etc. Honestly, this is not a case for compensation. Social influence won't change that. We treat all users equally. Ensuring your api key is secure is important. 🙏
@mikevanrossum Mike van Rossum on x
As CZ put the pump and dump: “one guy bought and others followed” https://twitter.com/...
@coinmamba @coinmamba on x
As a private business you have a right to deny someone your service. But Binance is not just any company it's a crypto company. Crypto is about giving everyone a chance to participate regardless of their identity or opinion. What they are doing is against these values..
@tuviae Tuvia Elbaum on x
Well, at least he didn't say “everything is fine”........ https://twitter.com/...
@fatmanterra FatMan on x
@coinmamba @cz_binance CZ is denying you service after you threatened to destroy his business on social media if he didn't pay you back for a scam he wasn't responsible for. Not saying I necessarily agree with his decision, but this is not as egregious as you make it sound. Seems…

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