Binance's Latest Proof of Reserves: Are All Assets Adequately Supported?

Binance Publishes Proof of Reserves Report for January 2024

Binance, the leading cryptocurrency exchange, has released its fourteenth Proof of Reserves (PoR) report, offering a detailed overview of its reserves as of January 1, 2024. This disclosure comes at a crucial time when trust and transparency are paramount in the crypto industry, especially after recent events like the FTX collapse.

The latest PoR, conducted using zk-SNARKs verification technology at BTC Block Height 823629, reveals significant holdings across major cryptocurrencies such as Bitcoin, Ethereum, Binance Coin, Tether, BUSD, USD Coin, Litecoin, and XRP. The report indicates overall robust growth in user assets, which can potentially boost investor and user confidence. You can find the full report here.

Binance’s Proof Of Reserves: Ensuring Full Asset Backing

Binance’s PoR system aims to guarantee that the exchange has sufficient reserves to fully back user assets on a 1:1 basis, along with additional reserves. This system is crucial for ensuring that users’ assets are fully backed even during financial downturns. It’s important to note that Binance’s corporate holdings are kept separate from this PoR.

The exchange utilizes a combination of Merkle trees and zk-SNARKs to provide transparent and verifiable reserve proof. Merkle Trees consolidate large data sets into a single hash, enabling users to verify specific contents within the dataset. zk-SNARKs is a proof protocol that allows the exchange to prove the inclusion and accuracy of individual user balances in the reserve calculations without revealing sensitive details.

As a user, you can independently verify your account balances as part of the PoR. By logging into the exchange and accessing the wallet verification section, you can view your Merkle Leaf and Record ID, confirming your inclusion in the third-party auditor’s attestation report. The PoR report reveals various ratios for cryptocurrencies like BTC, ETH, USDT, BNB, USDC, and XRP.

Criticisms and Trust Issues

This report follows a tumultuous year for Binance in 2023, marked by legal challenges and scrutiny. The exchange paid a $4.3 billion fine to settle lawsuits with US regulators and faced allegations of mixing user and corporate funds. CEO Richard Teng emphasized the company’s commitment to compliance, highlighting a $213 million investment in their compliance program.

Despite Binance’s efforts to increase transparency through monthly PoR releases, critics argue that these reports lack the thoroughness of a full independent audit. Additionally, the exchange only publishes PoRs for 31 out of its 350 listed digital assets. This selective reporting, along with the withdrawal of Mazars, the initial auditor contracted for these reports, has raised doubts about the credibility of Binance’s reserve claims.