Binance auditor withdraws from working with crypto company

Binance, the world’s largest cryptocurrency exchange, has revealed that auditor Mazars has stopped working with it.

The exchange, which was hit by $6 billion in withdrawals this week, said in a statement that the French audit firm had “temporarily” suspended its work with Binance.

Mazars says it has suspended all proof-of-reserves work among cryptocurrency clients, including Binance. Proof of reserves checks consist of verifying that an institution can cover the funds of its customers. Mazars’ relationship with Binance is limited to proof-of-reserve work.

Mazars added that he was suspending this work due to concerns about “how these reports are understood by the public”. Mazars went on to say that these reports had limitations in terms of providing assurances. He said Proof of Reserves reports “do not constitute assurance or an audit opinion on the subject. Instead, they report limited results based on agreed-upon procedures performed on the subject at a historical time.

Mazars move follows the collapse last month of FTXone of Binance’s rivals, and the Monday arrest of FTX founder Sam Bankman-Fried, who was loaded in the United States on allegations of fraud, money laundering and conspiracy.

Binance customers have been scrambling to withdraw funds from the exchange, and a spokesperson revealed that it returned $6 billion in total on Monday, Tuesday, and Wednesday of this week.

The spokesperson said Binance has been handling withdrawals “without breaking the rhythm,” although the exchange paused withdrawals from the USDC stablecoin on Tuesday, after depleting the asset in its reserves. But he says his efforts to avoid the bank run are working.

Questions and answers

What is a stablecoin?

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A stablecoin, as the name suggests, is a type of cryptocurrency believed to have a stable value, such as $1 per token. How they achieve this varies: the major ones, such as tether and USD Coin, are actually banks. They hold large reserves of cash, liquid assets, and other investments, and simply use these reserves to maintain a stable price.

Others, known as “algorithmic stablecoins”, attempt to do the same but without any reservations. They have been criticized as being effectively backed by Ponzi schemes, as they require continuous inflows of cash to ensure they don’t collapse.

Stablecoins are an important part of the cryptocurrency ecosystem. They offer investors a safer place to store their capital without having to cash out entirely, and allow assets to be denominated in conventional currency, rather than other highly volatile tokens.

“Ultimately, our users want to know that their funds are safe and that our business is financially sound,” the spokesperson said.

“To that end, Binance’s capital structure is debt-free, and over the past week, Binance has passed a stress test which should give the community tremendous comfort in the safety of its funds. Despite the large number of withdrawals from December 12 to 14, $6 billion in net withdrawals over three days, we were able to honor them without slowing down the pace.

While Mazars worked with Binance, the company refrained from providing a full audit for the exchange. Instead, a document that Mazars prepared, known as a “proof of reservations report”, was prepared using a method known as “agreed-upon procedures”, in which the auditor only examines only the areas of the business that are explicitly requested to be focused on.

In Binance’s case, that meant reviewing the company’s reserves, but not verifying claims about its liabilities. Changpeng Zhao, CEO of Binance, said the company ‘has no loans’.

The Binance spokesperson added that the exchange has “contacted several large companies” to assume its audit, including the “big four” accounting groups, although they are “currently unwilling” to perform a proof report. reserves for a private crypto company. . “We’re still looking for a company that will,” the spokesperson added.

Crypto companies routinely lack comprehensive audits. Attached, a controversial stablecoin provider which says it has more than $70 billion in reserves backing its cryptocurrency, has produced a quarterly “Statement of Reserves”, sometimes presented as an audit, which attests to the presence of assets in its reserves at any given time. The company touts its work with a “big five” audit firm, BDO, which is not one of the classic “big four” accountants.

On Thursday, auditing firm Armanino, a mid-size US auditor, reportedly ended its crypto auditing practice entirely, after signing the accounts of the allegedly ring-fenced US subsidiary of FTX.

The auditor fears that the resulting reputational risk could harm his non-crypto business. He was cited in a class action lawsuit against the closed exchange, filed by an FTX client who claims to have lost $20,000, according to Forbes, who announced the decision to withdraw from the crypto industry.