Binance has lately declared its intention to be transparent. Nevertheless, it has a lot of ground to cover before it provides sufficient useful data for investors. The company’s future, accounting, and financial stability are all important concerns.
With the collapse of FTX, the world’s biggest cryptocurrency exchange is attempting to assure users that their assets are safe. Binance’s success or failure will greatly impact the entire crypto market.
Binance revealed the crypto wallet addresses details last month. It engaged an independent accounting company to prepare a “proof of reserve report.” The company will cover some of its assets and debts, including some financial information. It has also stated that more information will be provided. Binance has no obligation to provide audited financial reports. As a result, there has been no public disclosure of its financial status or liquidity. It has not stated any intentions to do so.
A five-page letter from a partner at Mazars’ South African affiliate was published as the reserve report on Wednesday. The letter didn’t offer an opinion or assurance conclusion. Mazar said the letter was not an audit report. It does not mention the effectiveness of the company’s internal control over financial reporting.
Several figures in the Binance report prompted doubts regarding the company’s ability to pay its financial obligations to customers.
A brief section called “report specifics,” consisting of the three digits, each denominated in bitcoin, appeared on the last page of the Mazars letter. A balance of 597,602 bitcoins was shown on one number labeled “customer liability report.” A balance of 582,486 bitcoins was in another number, “asset balance report.”
As a result, the Mazars letter stated that overall bitcoin liabilities were 3% higher than the bitcoin assets covered in the report as of Nov. 22, which was within the reporting period. In other words, Binance’s reserves to customer assets ratio were not met. According to estimates by The Wall Street Journal, the debts would have been roughly $9.68B in dollar terms, based on bitcoin’s price at the time. The assets would have been roughly $9.43B, or about $245M lower.
The third number, on the other hand, depicted a different scenario. That figure indicated a decrease of around 21,860 bitcoins to 575,742 bitcoins, regarded as “net liability balance (excluding in-scope assets lent to customers).” Binance offers loans and margin accounts to its customers, allowing them to borrow cryptocurrencies.
Jessica Jung, a spokeswoman for Binance, stated that the sum of 21,860 bitcoins represented “BTC loans provided to users via the Binance loan program” and “the collateral for said loans being in other currencies rather than BTC.” If Mazars hadn’t focused on bitcoin alone, she added, “we would be completely collateralized.”
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