Audit firm Mazars ceases proof-of-reserves work for Binance and others

Global audit firm Mazars has deleted the website that hosted proofs-of-reserves work for cryptocurrency exchanges. The company told Bloomberg that it is suspending its work with crypto companies on proofs-of-reserves reports going forward.

Mazars appeared a few times in crypto news over the past few weeks because it started issuing those reports for cryptocurrency exchanges. The idea is that exchanges could reassure their users after the FTX downfall. Mazars also used Merkle trees so that users could check that their crypto assets are included in the report by entering a hash.

Clients of the audit firm include Crypto.com and Kucoin. But the most prominent client was Binance. Mazars certified last week that Binance held enough bitcoins and wrapped bitcoins to cover all users’ balances on the exchange as of November 22 at 23:59 UTC.

But when Binance and Mazars announced the proof-of-reserves report for the exchange’s bitcoin reserves, many people were quick to point out that this report only covered a small portion of Binance’s activities.

It could be seen as a step in the right direction, but it doesn’t mean much when it comes to Binance’s handling of all crypto assets across all its products. Similarly, it’s hard to see whether user assets are separated properly from Binance’s own balance sheet.

As long as Binance doesn’t share the full picture, it’s impossible to say with 100% certainty that Binance currently holds user accounts in segregated crypto wallets without any market exposure.

Mazars’ move doesn’t mean that the reports were wrong. It just means that the audit firm doesn’t think working with crypto firms for these reports is worth the risk. People have paid a lot of attention to these reports, which means that Mazars is putting its reputation on the line if one of those exchanges fail in one way or another.

Building trust requires a lot of effort and these auditing reports appeared a bit too quickly after the collapse of FTX. While they were a step in the right direction, proving that user assets are safe will require a more thorough approach.