Binance cancels its Proof of Reserve

Fresh news has just been confirmed that Binance’s Proof of Reserve has been deleted from the website. The news could create a panic among investors on the large exchange platform. At the moment, there has been no statement on the matter, Changpeng Zhao, the CEO of Binance has not yet spoken on the cancellation of the Proof of Reserve report. 

The CEO of Binance has been clear in explaining that all investors should trust blockchains because they are large collectors of secure and reliable information. 

Binance and the Proof of Reserve

The past month for Binance has been full of communication with investors. The exchange has made public details about its crypto wallet addresses. It has hired an outside accounting firm to prepare its Proof of Reserve (PoR) report, which covers its assets and liabilities portion, including a small parenthesis on financial data.

And he also promised that more information will be available in the short term.

“When we say Proof of Reserve, we are specifically referring to those assets that we hold in custody for users. This means that we are showing evidence and proof that Binance has funds that cover all of our assets, as well as some reserves.”

This was explained in detail on Binance’s website, where it has created a specific blog to communicate its transparency.

But there are those on the investor side who are still not satisfied and think the community needs even more transparency. Speaking about this was Douglas Carmichael, professor of accounting at Baruch College in New York and former chief auditor of the US Public Company Accounting Oversight Board. According to ​Douglas Carmichael, however, investors should not be satisfied with the report:

“I can’t imagine it answers all the questions an investor might have about the sufficiency of the guarantee. That’s the main aspect he seems to be referring to.”

 The report says its purpose is to show clients that the assets covered by the report are guaranteed, exist on the blockchain, and are under the control of Binance. 

What does the removal of the Proof of Reserve report mean?

As explained earlier, there is still no definite news as to why Binance has cancelled its Proof of Reserve. Users of the exchange hope it is not a problem with solvency, this would go a long way to creating a lot of panic and many problems in the industry, especially given the great power of Binance. 

A lot of criticism has also come on Twitter towards the CEO of Binance, including from well-known figures such as, for example, Jim Cramer. 

Jim Cramer is an American television personality and author. He is the host of Mad Money on CNBC and an anchor of Squawk on the Street. Former hedge fund manager, founder and senior partner of Cramer Berkowitz. 

Today on Twitter, Jim Cramer, used some not-so-subtle words for the exchange platform, first with a tweet aimed at its users where he asked if they really trusted Binance. 

With the second tweet, he launched an attack, saying:

“I would trust my money more in Draftkings than in Binance.”

Changpeng Zhao‘s response was not long in coming, countering with:

“We’re safe now,” 

referring to Jim Cramer’s failure to invest in Binance. 

Proof of Reserve does not convince analysts

Although it has now been removed, Binance’s Proof of Reserve had not convinced everyone. 

As pointed out by an investment manager and former member of the Financial Accounting Standards Board (FASB), the report published by auditing firm Mazars is deficient: it lacks information regarding the quality of internal controls and how Binance’s systems liquidate assets to cover margin loans.

Another red flag concerns the lack of information about Binance’s corporate structure. According to the Wall Street Journal report, Binance’s Chief Strategy Officer Patrick Hillmann was unable to point to Binance’s parent company because the company has been in a “corporate reorganization” phase for nearly two years.

Some differences between Bitcoin’s total liabilities were also pointed out. The exchange’s Proof-of-Reserve shows that Binance was only 97% collateralized:

“We found that Binance was 97 percent collateralized, without taking into account the ‘Out-Of-Scope’ assets promised by customers as collateral for the ‘In-Scope’ assets provided through loan and margin trading services. This results in a negative balance in its Customer Liability Report.

When including In-Scope assets provided to customers through margin and loans, over-collateralized by Out-Of-Scope assets, we identified that Binance was 101 percent collateralized.”