After the FTX bankruptcy, some exchanges used Proof Of Reserve (PoR) to demonstrate to users that their reserves are sufficient to cover the cryptocurrencies held on the exchanges. Behind the failure of FTX, in fact, there was an illegal sorting of users' crypto funds, used for investments on other platforms or for the purchase of physical goods in the Bahamas for example. Therefore, at the time of the massive withdrawal by investors, the exchange did not have the covers and this sparked the case which proved to be the biggest scam in the cryptocurrency sector.
Thus began a race for PoR by exchanges such as Binance, Crypto.com and Kucoin, demonstrating to users and the most skeptical or secure funds.
Is PoR a truly reliable index?
The question is all here. PoR are usually data provided by third parties, companies specialized in data verification, in this case in ensuring that the funds on the exchange cover 100% of the users' cryptocurrencies. In other words, the PoR eliminates the risk of firms maximizing yield and other possible returns by using client assets.
Binance trusted French auditor Mazars to audit and verify the PoR of $BTC, $ETH, $BUSD, confirming the availability of coverage of all user assets with flying colors. But, after a few days, the same reviewer cancels the results of the PoR.
Mazars has informed that it will temporarily suspend its work with all of its crypto clients globally, including Crypto.com, KuCoin and Binance. This is due to concerns about how these reports are understood by the public, the company said.
An investment manager and former member of the Financial Accounting Standards Board (FASB), says that the report published by the independent auditors Mazars is deficient: there is a lack of information relating to the quality of internal controls and how of Binance liquidate assets to cover margin loans.
The story has not left users indifferent who have continued to withdraw Bitcoins and other cryptocurrencies from exchanges in recent weeks. Not your key, not your money. The lesson imposed by FTX seems to have some effects. Finally.