On December 16, Mazars Group, the global auditing firm that began working with major players in the crypto industry such as Binance, KuCoin and Crypto.com halted all crypto audits.
So it seems Mazars was asked to do a limited proof-of-reserves for Bitcoin only, netting out loans and collateral. Binance then briefed the media that this proved Binance was fully reserved. But it didn't prove anything of the sort. No wonder Mazars pulled it.
— Frances 'Cassandra' Coppola (@Frances_Coppola) December 17, 2022
The auditor had begun, since late November, to post reports regarding cryptocurrency exchanges, and had been employed by major crypto clients, most notably, Binance.
Last week, Mazars posted a website showing proof of liabilities and reserves for the exchange claiming that Binance, as of November 22 2022 23:59:59 UTC, possessed enough assets in bitcoins to cover all customers’ stakes. They pegged Binance’s collaterization ratio at 101% for bitcoin holdings.
Critics of the supposed audit pointed out that the website did not provide specific evidence that Binance kept user assets segregated from its own market-exposed balance sheet. Neither did it contain full coverage of Binance’s asset handling across the board.
As of yesterday, Mazars has removed the website and claims to have “paused” work with cryptocurrency exchanges. The French firm claimed, in an email Bloomberg reported, that work with cryptocurrency clients was halted due to lack of significant market reassurance from their proof of reserves report.
It is speculated that the firm simply could not justify taking the risk associated with auditing crypto exchanges especially at such a high-profile time, as cryptocurrency exchange audits are a novelty as far as business audits go. Coupled with the fact that responses to the website were skeptical, and pointed out lack of coverage of Binance’s full scope of operations, it is understandable that Mazars Group chooses to back out completely.
Though this may simply be a lack of confidence due to insufficient familiarity with the crypto market and Mazars being hesitant to end up tied to the turbulent crypto scene, it has not helped the fear and uncertainty rocking the exchanges. Even more crypto users have begun to withdraw their assets from Binance and other exchanges in the wake of the website’s deletion.
Seemingly in response, Binance CEO Changpeng Zhao, also known as CZ, posted a new proof of reserve report dated December 17 and published on CryptoQuant. This report claims that Binance’s reserve is “clean,” meaning BNB, Binance’s token, does not make up a significant proportion of total assets. It also claims that Binance’s reserves are not exhibiting “FTX-like behavior.”
Whether Mazars will return to working with crypto, or another independent firm will pick up the audit remains unknown.
