Binance proof of reserve “ignorance” or “misrepresentation”

While Binance takes steps to improve the transparency of its reserve funds, it has also exposed itself and “red flags” in its finances according to The Wall Street Journal.

The report comes from financial specialists from The WSJ, and notes that the exchange’s finances lack information about whether the internal controls are in place as well as no information about how Binance can liquidate assets in order to cover margin loans. Binance also does not provide enough information about how it is structured. According to research in the report, Patrick Hillmann, the chief strategy officer of Binance could not name Binance’s parent company.

Furthermore, there were discrepancies in the the total Bitcoin liabilities in the crypto exchange. Because the proof of reserves indicates that the exchange has 97% collateralised assets, the 1:1 ratio of reserve is not able to stand. As per the report:

“We found that Binance was 97% collateralized without taking into account the Out-Of-Scope Assets pledged by customers as collateral for the In-Scope-Assets lent through the margin and loans service offering resulting in negative balances on the Customer Liability Report. With the inclusion of In-Scope Assets lent to customers through margin and loans which are overcollateralized by Out-Of-Scope Assets, we found that Binance was 101% collateralized.”

Binance released the proof of reserve system after the FTX crash in order to offer users more confidence and trust in its systems. Despite this effort, the lack of comprehensive information from Binance has been criticised as a fruitless endeavour. In response to the system, Jesse Powell, CEO of crypto exchange Kraken tweeted:

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