On the 7th of December, Mazars, an international audit, tax, and advisory firm, confirmed that the Bitcoin holdings of Binance, the largest cryptocurrency exchange in the world by trading volume, is more than it needs to cover customer deposits. According to the audit firm’s published page, the firm observed Binance controlled in-scope assets over 100% of their total platform liabilities at the time of assessment.
In the published page, the audit firm also provided Binance’s proof-of-reserves and proof-of-liabilities verification. According to Mazars, as of midnight UTC on the 22nd of November, there was a 101% collateralization ratio of 575,742 BTC in net customer deposits. This amount matched the figure provided by the Binance report of proof of reserves last month. This accounts for all Bitcoin assets, including those circulating on other networks such as BNB Chain, Ethereum, and Binance Smart Chain.
Last month, after the collapse of FTX, which was once the biggest crypto exchange in the world and now is nothing, Binance quickly implemented its proof-of-reserves system. This move from Binance exposed the fact that FTX did not have the crypto on its books to cover an inflow of customer withdrawal requests. And last week, in a Twitter Spaces interview, bankrupt FTX’s founder Sam Bankman-Fried also agreed that his company was effectively letting users trade nonexistent Bitcoin.
The Merkle Tree, Binance’s proof-of-reserves system, uses blockchain data that allows customers to independently verify the safety of their assets. This proof-of-reserves system also ensures that the assets aren’t being lent out or stolen without permission. And now Mazars lets Binance users do the same process by calculating the Merkle Leaf representing their Bitcoin holdings on the exchange as of the 22nd of November by pasting their Merkle Hash of the account into the tool.
Jesse Powell, the CEO of cryptocurrency exchange Kraken, criticized Binance’s proof of reserves report last month. On the 23rd of November, in a tweet, Jesse said that the Merkle Tree is just hand-wavey bullshit without an auditor to make sure you didn’t contain accounts with negative balances. The report of assets is pointless without liabilities, he added. And several others from the crypto community also criticized the proof of reserves report.