Auditing firm Mazars has released a report about Binance’s BTC reserves. The auditing firm has reached the same conclusion as Binance itself. As of November 22 at 23:59 UTC, Binance held enough bitcoins and wrapped bitcoins to cover all users’s balances on the exchange.
Binance had already launched a proof-of-reserves website nearly two weeks ago to reassure its users following the collapse of FTX. Today’s audit just confirms that Binance doesn’t appear to be lying, according to Mazars.
As always, there are some limitations with these proof-of-reserves exercises. The biggest caveat is that Binance is only focusing on BTC assets for now. If you hold other cryptocurrencies, there is no proof-of-reserves system just yet.
While bitcoin is still the most popular cryptocurrency, Binance offers hundreds of different crypto assets. So let’s hope this is just a first step.
Similarly, both Binance and Mazars looked at the BTC reserves on November 22 at 23:59 UTC. While it’s hard to provide an instant snapshot, Binance hasn’t committed to a timeline for its proof-of-reserves reports. For instance, the crypto exchange could share data every week or every month.
Now that you are aware of all that, let’s talk about what’s in Binance’s proof-of-reserves system and the Mazars auditing report. Binance uses a Merkle tree to include all individual user accounts and generate a cryptographic seal. This Merkle tree covers user balances across several Binance products — Spot, Funding, Margin, Futures, Earn and Options Wallet.
Binance also listed all the wallets that hold customer assets. Blockchain explorers let you obtain the balance of crypto wallets just by looking at the public addresses of those wallets.
Binance found that its users collectively held 575,742.4228 BTC ($9.7 billion at today’s exchange rate) and that it has enough BTC and wrapped BTC to cover 101% of these funds. It then contacted Mazars so the auditing firm could independently verify what the crypto exchange was saying.
Mazars asked Binance to perform tiny transactions at a specific time to show that the wallets were indeed under the control of Binance. For some wallets, it used a different method. In that case, Mazars used Etherscan and BSCscan to check that the ETH and BSC wallets belong to Binance.
The auditing firm checked the scripts that Binance is using to extract the total value in user accounts. Mazars checked that there wasn’t any duplication of user IDs and constructed its own Merkle tree using this open source script developed by SilverSixpence.
Some users have a negative BTC balance because they have been using the margin and loan service with other crypto assets as collateral. “Binance's margin and loan products are always over-collateralized and subject to additional risk controls (such as auto liquidation). These products ONLY utilize funds from customers actively using Binance Earn products such as savings whose terms permit this,” Binance said as a comment in the auditing report.
If you take everything into account, Mazars and Binance reach the same conclusion when it comes to BTC reserves. This is a good step when it comes to transparency. Now, let’s hope there will be more announcements in the coming weeks.