• According to experts interviewed by The Wall Street Journal, Binance’s efforts to increase the openness of its reserves raises questions about the corporate structure, Bitcoin liabilities, and internal control effectiveness.
• A former FASB member and investment manager noted that the audit firm Mazars‘ report does not provide enough details that would inspire investors with confidence.
• The Wall Street Journal’s sources identified the lack of details regarding Binance’s business structure and the differences in the aggregate Bitcoin liabilities as additional areas of concern.
Binance, the world’s largest cryptocurrency exchange, has been making efforts to increase the transparency of its reserves. However, this has raised questions by accounting and financial experts interviewed by The Wall Street Journal. The lack of details regarding Binance’s corporate structure, Bitcoin liabilities, and internal control effectiveness have left investors feeling uncertain.
A former investment manager and member of the Financial Accounting Standards Board (FASB) noted that the audit firm Mazars’ report does not provide enough information for investors to have confidence in the exchange’s financial standing. This is because the report does not provide details about the effectiveness of internal controls and how Binance’s systems dispose of assets to pay off margin loans.
The Wall Street Journal’s sources identified the lack of details regarding Binance’s business structure as another issue. Since Binance has gone through a corporate reorganization for almost two years, the business’s chief strategy officer, Patrick Hillmann, was unable to identify Binance’s parent company.
In addition, the sources also pointed out the differences in the aggregate Bitcoin liabilities. Without including assets lent to customers through loans or margin accounts, the exchange’s proof of reserves reveals a 1:1 ratio of reserves to customer assets wasn’t met. The letter from Mazars explains this distinction as follows: “The exchange’s Bitcoin liabilities are not included in the aggregate reserves, which means that the exchange’s Bitcoin liabilities are not included in the total reserves.”
These questions have raised concerns among investors, leading to an overall lack of confidence in the financial stability of the exchange. In order to reassure investors, Binance must provide greater transparency into its corporate structure, Bitcoin liabilities, and internal control effectiveness. Only then will investors be able to regain their trust in the exchange.