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Binance Proof of Reserves Raises Red Flags: Report

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Binance’s efforts to improve the transparency of its reserves have also exposed red flags in the crypto exchange’s finances, according to accounting and finance professionals. consult By The Wall Street Journal.

As a former member of the Financial Accounting Standards Board (FASB) and investment manager pointed out, the report issued by the auditing firm Mazars does not bring investor confidence about the stock exchange’s financing because it lacks information on the quality of internal controls and how its systems monetize assets to cover margin loans.

Another red flag raised by the newspaper’s sources relates to the lack of information about the structure of Binance. According to the report, Binance Chief Strategy Officer Patrick Hellman was unable to provide the name of Binance’s parent company as it has been undergoing a corporate reorganization for nearly two years.

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The differences between the total Bitcoin liabilities are also highlighted. Proof of reserves in the stock exchange Offers That Binance was 97% guaranteed if the disposed assets were lent to users through loans or margin accounts, indicating that the 1:1 ratio of reserves to clients’ assets did not materialize. Mazars’ letter states the difference:

“We found that Binance was 97% collateralized without taking into account out-of-band assets pledged by customers as collateral for in-band assets that were lent out by offering margin and loan service resulting in negative balances on the customer liability report. With the inclusion of in-band assets that were By lending it to clients via margin and loans added with collateral via off-scale assets, we found that Binance was 101% guaranteed.”

John Reed Stark, Senior Lecturer Fellow at Duke University School of Law and former head of the SEC’s Office of Internet Enforcement, advertiser In a Twitter post about Binance reserves:

Binance’s “Proof of Reserve” report does not address the effectiveness of internal financial controls, does not express an opinion or assertive conclusion, and does not guarantee numbers. I have worked in SEC Enforcement for over 18 years. Thus identifying a red flag.”

After the collapse of FTX, Binance last month released a Proof of Reserves system that allows users to verify their assets using the Merkle tree. The initiative, however, was Competitors called it “pointless” Because it fails to include antagonists.

Mazars revealed the audit report of Binance’s Bitcoin reserves on December 7. According to the international auditing firm, the cryptocurrency exchange has control of 575,742.42 Bitcoin from its customers, worth $9.7 billion at the time of the report. According to the methodology, “Binance was 101% foolproof,” the company said.

The scope of the report included spot clients, options, margin, futures, financing, loans, profit accounts for Bitcoin and Bitcoin Coated (WBTC). Aside from the Bitcoin network, BTC wrapped in Ethereum, BNB Chain, and BNB Smart Chain were also included in the inquiry. Cointelegraph reported.

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