Audit Firm Mazars Bails on Binance Proof of Reserves Statement

Mazars, an international accounting firm, has pulled its proof of reserves report on Binance, according to multiple reports. Mazars apparently has halted all work on crypto platforms. Mazars has yet to issue a statement on its decision.

Most recently, Mazars posted a Proof of Reserves statement for Binance on December 7, 2022.  The document is quoted below:

Our report is solely for the purposes of offering Binance’s customers and prospective customers additional transparency and reassurance that their In-Scope Assets are collateralized, exist on the blockchain(s) and are under the control of Binance at the below mentioned reporting date. For the purpose of this Agreed-Upon Procedures (“AUP”) engagement the term “collateralized” will be defined as where Binance’s In-Scope Assets are equal to or greater than the net liability of In-Scope Assets as per the Customer Liability Report owed to and receivable from customers.

For the purpose of this engagement the customers’ spot, options, margin, futures, funding, loan and earn accounts for bitcoin (“BTC”) and wrapped bitcoin (“BBTC” and “BTCB”)

Binance has requested that we perform an AUP engagement on the customers’ cryptocurrency holdings and corresponding liability of funds owed to the customers of Binance as at 23:59:59 Universal Time Coordinate (“UTC”) on the 22nd of November 2022 (“the reporting date”). The management of Binance acknowledge that the AUP are appropriate for the purpose of the engagement and are responsible for the subject matter on which the AUP are performed.

We have conducted the AUP engagement in accordance with the International Standard on Related Services (ISRS) 4400 (Revised), Agreed-Upon Procedures Engagements. An AUP engagement involves us performing the procedures that have been agreed with Binance, and reporting the findings, which are the factual results of the AUP performed. We make no representation regarding the appropriateness of the AUP.

This 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.

We have complied with the relevant ethical requirements. For the purpose of this engagement, there are no independence requirements with which we are required to comply.

At that time, Mazars stated: “With the inclusion of In-Scope Assets lent to customers through margin and loans which are over- collateralized by Out-Of-Scope Assets, we found that Binance was 101% collateralized.”

The decision by Mazars may be concerning as crypto markets remain jittery following the failure of FTX, a crypto exchange that misplaced approximately $8 billion. The bankruptcy of FTX has been described by its new CEO, John J. Ray, III, as old-school embezzlement. Funds allegedly were comingled with Alameda Research, a hedge fund, which tapped into customer deposits to fuel its operations.

In the past week, it has been reported by WSJ.com that around $6 billion has been pulled from Binance, the largest crypto exchange in the world, as investors fear for a similar run on the bank-type scenario that took out FTX.

Changpeng “CZ” Zhou, Binance’s founder and CEO, appears nonplussed by the activity claiming that digital assets are the most “auditable ledger.”

Nansen reported on December 13 that approximately $1.9 billion in daily net withdrawals had taken place in the previous 24 hours.

The following day, a Nansen analyst described Binance’s stablecoin reserves as “beefy.”

 

 

 

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