Binance users' Bitcoin accounts are 101% collateralized with BTC: Mazars
(Kitco News) - South African auditing firm Mazars published their long-awaited report on Wednesday asserting that Binance, the world’s largest cryptocurrency exchange, has direct control of 575,742.42 Bitcoins (BTC) worth over $9.6 billion at the time of publication, and the Bitcoin holdings listed in customers’ accounts are fully collateralized by these BTC.
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.”
The AUP engagement defined the scope of assets as “customers’ spot, options, margin, futures, funding, loan and earn accounts for bitcoin (“BTC”) and wrapped bitcoin (“BBTC” and “BTCB”) held on the Bitcoin, Ethereum, BNB Chain and Binance Smart Chain blockchains” as of 23:59:59 UTC on Nov. 22, 2022.
Mazars wrote that they obtained Asset Balance Reports for the In-Scope Assets from management, along with a full listing of all the assets’ public keys and addresses. They also independently obtained the nominal balance of the keys and addresses for the corresponding time.
“We compared the total nominal balance of each blockchain’s In-Scope Asset […] to the Asset Balance Reports obtained […] and did not find any variances greater than 1%,” they wrote. “We found that Binance was 101% collateralized.”
Mazars also outlined a number of procedures they used to independently verify that the Bitcoin listed in the Asset Balance Reports were fully in the possession of Binance by requesting that the exchange move the BTC listed at specific addresses at their request. One of these moves was spotted on chain and provoked widespread concern on Nov. 28, prompting Binance CEO Changpeng Zhao (CZ) to issue an explanation to reassure customers and the broader crypto market.
This is part of the Proof-of-Reserve Audit. The auditor require us to send a specific amount to ourselves to show we control the wallet. And the rest goes to a Change Address, which is a new address. In this case, the Input tx is big, and so is the Change. Ignore FUD! https://t.co/36wUPphIZk pic.twitter.com/2NkH5L5J9j— CZ ?? Binance (@cz_binance) November 28, 2022
The Mazars report is Binance’s attempt to make good on CZ’s Nov. 8 promise to independently prove the exchange’s reserves after the collapse of rival exchange FTX, which allegedly loaned virtually all their high-value collateral to Alameda Research, who then lost it in risky, highly leveraged trades.
On Nov. 10, Binance published the crypto platform’s hot and cold wallet addresses and on-chain activity. They said in a statement that the reserves data represents Binance’s “ongoing commitment to transparency” and referred to it as “a starting point while we work to create a Merkle tree POF” to be published in the coming weeks.
With the completion of the Mazars AUP engagement, customers no longer need to take Binance’s claims of healthy reserves and 1-1 backing of BTC holdings on trust.