Experts Raise Warning Signs Over Binance’s Financial Transparency

• According to experts interviewed by The Wall Street Journal, Binance’s efforts to increase the openness of its reserves raised several warning signs in the cryptocurrency exchange’s finances.
• Concerns include the corporate structure, Bitcoin liabilities, and internal control effectiveness.
• The lack of details regarding Binance’s business structure, difference in the aggregate Bitcoin liabilities, and lack of details pertaining to the effectiveness of internal controls were identified as a major issues.

Binance, the world’s leading cryptocurrency exchange, has recently come under scrutiny for its efforts to increase the transparency of its reserves. According to a report by the audit firm Mazars, the exchange was 97% collateralized, meaning that the 1:1 ratio of reserves to customer assets was not met. This raised red flags for accounting and financial experts that were interviewed by The Wall Street Journal, as it revealed potential issues with Binance’s finances.

Firstly, experts noted the lack of information regarding Binance’s corporate structure. The exchange has undergone a corporate reorganization for almost two years and its Chief Strategy Officer, Patrick Hillmann, was unable to identify the parent company. Additionally, there were questions regarding the effectiveness of internal controls, and how Binance’s systems dispose of assets to pay off margin loans.

The second issue that experts identified was the difference in the aggregate Bitcoin liabilities. Without including assets lent to customers through loans or margin accounts, the exchange’s proof of reserves revealed that Binance was 97% collateralized. Mazars‘ letter explained this distinction by saying that „the liabilities of the company may have been overstated in comparison to the assets.“

Overall, the experts interviewed by The Wall Street Journal raised several concerns regarding Binance’s efforts to increase the transparency of its reserves. These include the lack of information regarding Binance’s corporate structure, internal control effectiveness, and the difference in the aggregate Bitcoin liabilities. As such, investors are not left with confidence regarding the exchange’s financial standing, which could have a major impact on the success of the company in the future.

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