Ever since Binance spurred the fall of the crypto exchange FTX, Changpeng Zhao (CZ) has positioned his firm as one of the cleanest shirts in the crypto sphere. However, a number of back-to-back developments are now calling into question this pristine persona that Binance has worked hard to project over the past few weeks.
— *Walter Bloomberg (@DeItaone) December 12, 2022 For starters, Reuters is now reporting that the US Department of Justice (DoJ) is currently split on whether to formally level charges against Binance in a money laundering investigation that began in 2018, with some investigators now pushing for aggressively moving against key Binance executives, including its co-founder and CEO, CZ. Moreover, the firm’s lawyers have met with DoJ officials over the past few months to discuss a possible plea deal or an out-of-court settlement. Meanwhile, we previously reported that Binance released the results of an audit of its Bitcoin reserves on the 25th of November. The audit supposedly proved that Binance maintains a 101 percent reserve ratio on Bitcoin. The exchange has also wowed to release audit results for reserves held in other cryptocurrencies and has empowered its customers to verify the backing of their assets via a Merkle Tree. However, rumors continued to persist that Binance employed a fractional reserve system for some of its coin holdings. For instance, Chico Crypto identified a troubling development in a YouTube video a couple of weeks back. Binance allows anyone to check its proof of collateral. However, on the 10th of November, Binance’s holdings of Bitcoin Cash did not match the on-chain proof, as shown in this video (starting from the 06:10 mark). This led Chico Crypto to theorize that Binance might have accidentally listed its Bitcoin Cash liabilities instead of reserves.
— Mr. Whale 🐳 whalechart.org (@WhaleChart) December 11, 2022 Now, further details have compounded the murkiness around this issue. To wit, Binance had tasked Mazars to perform an “audit” of its Bitcoin reserves. However, as per the auditor’s press statement, the examination was quite narrow in its breadth, focusing only on “in-scope” assets and utilizing “agreed-upon procedures.” Mazars went on to note: This statement calls into question the utility of Binance’s self-proclaimed proof-of-reserves, given the absence of independent vetting by a third party.
“Liabilities are harder, we don’t owe loans to anyone, ask around” - CZ Meanwhile, $BNB borrows have been suspended on Binance. https://t.co/9OW9QVNxaQ pic.twitter.com/Y9Hti137bw — Dylan LeClair 🟠 (@DylanLeClair_) December 12, 2022 Almost all of the crypto exchanges that have opted for a “third-party audit” have only chosen to perform a similar agreed-upon procedure. Consequently, such exchanges should immediately desist from using the word “audit” to describe such procedures.
— CZ 🔶 Binance (@cz_binance) December 12, 2022 Predictably, Binance’s CZ has taken exception to tweets that have called into question the firm’s audit results, terming such attempts as “poorly researched FUD or just poorly researched.” Do you think Binance is standing on a loose footing here? Let us know your thoughts in the comments section below.
