A report by auditing firm Mazars has revealed that Binance’s bitcoin reserves have a 101% collateralization ratio, suggesting that the exchange has more than all of the BTC it needs to cover customer deposits.
In a recent report, Mazars claimed the world’s largest cryptocurrency exchange has a 101% collateralization ratio on 575,742 BTC in net customer deposits as of midnight UTC on November 22.
“At the time of assessment, Mazars observed Binance controlled in-scope assets in excess of 100% of their total platform liabilities,” the report providing Binance’s proof-of-reserves and proof-of-liabilities verification said.
Notably, the collateralization report matches the figure provided by Binance late last month in its first proof of reserves report. And prior to that, Binance had revealed some initial details about its reserves right after FTX’s bankruptcy as nervousness started to spread in the crypto community.
Mazars wrote that they conducted an Agreed-Upon Procedures (“AUP”) engagement, which means “performing the procedures that have been agreed with Binance, and reporting the findings.”
They said they make no claim regarding the appropriateness of the AUP, and that “the 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.”
A Proof of Reserves (PoR) is an independent check conducted on centralized crypto exchanges by third parties. The goal is to make sure those platforms hold the assets they claim on behalf of their clients.
Binance CEO CZ was one of the very first crypto executives to support the idea of sharing proof-of-reserves in a bid to increase transparency. “All crypto exchanges should do Merkle-tree proof-of-reserves. Banks run on fractional reserves. Crypto exchanges should not,” he said on November 9.
Nevertheless, the PoR process has found increasing momentum over the past couple of weeks. According to data accumulated by Nic Carter, a partner at Castle Island Ventures and the cofounder of blockchain data aggregator Coinmetrics.io, five exchanges including Kraken, Bitmex, Coinfloor, Gate.io, and HBTC have completed their Proof of Reserves audits.
It is worth noting that some industry veterans have argued that Proof of Reserves alone is not enough. That is because this practice does not reveal the overall balance sheet and the liabilities of a platform, which makes it hard for users to thoroughly verify the financial health of a company.
“Proof of Reserves is a good start, but it needs to be coupled with Proof of Liabilities in order to be useful,” said Ava Labs CEO Emin Gün Sirer. In other words, crypto platforms could simply borrow funds for a short term to complete their PoR.