According to third-party auditor Mazars, Binance’s Bitcoin (BTC) reserves collateralization is in excess of 100% as of Nov. 22. The collapse of FTX has prompted exchanges to be more transparent about their holdings.
Binance’s Bitcoin Reserves Are Fully Collateralized,
On December 7, Mazars, an international audit firm operating in over 90 countries and territories around the world, confirmed that cryptocurrency exchange Binance possessed control over 575,742.42 BTC of its customers. At the time of writing this article, it is worth roughly $9.7 billion. Mazars stated that Binance’s BTC reserves are fully collateralized. According to an announcement on Mazars’s website, the firm deemed this to be 101% collateralized.
After verifying the exchange’s proof-of-reserves and proof-of-liabilities, the collateralization ratio is a measure of the amount of in-scope assets lent through the margin and loans service offering, which are collateralized by out-of-scope assets.
Mazars’ audit only focused on the exchange’s holdings of Bitcoin in multiple blockchains. The scope of the inquiry comprised customers’ spot, options, margin and futures accounts for Bitcoin and wrapped Bitcoin. In addition to the Bitcoin network, BTC wrapped on Ethereum, BNB Chain and Binance Smart Chain were also included in the inquiry.
The firm aggregated client data using its software and computed the Merkle Root Hash. This allowed Binance’s clients to verify that their Merkle Leaf was part of the Merkle Root, which they could do independently and cryptographically.
The Report Is Not An Official Audit
After the collapse of centralized crypto exchange FTX amid liquidity issues, competitors are coursing to improve transparency and reassure customers that their bitcoin is collateralized, exists on the blockchain, and is in the exchange’s control.
Francine McKenna, a lecturer in financial accounting at The Wharton School at the University of Pennsylvania, says that the assessment is not an official audit. McKenna commented that the auditor compared balances per public key address from a list obtained from management but did not compare any balances in independent banks or custodians or depositories.
As stated in Mazars’ report, the firm stated that they perform an Agreed-Upon Procedures (AUP) engagement which is not an assurance engagement and they do not express an opinion or an assurance conclusion. Also, stating that they complied with the relevant ethical requirements. Underlining that for the purpose of the engagement, there are no independence requirements with which they are required to comply.