Bitcoin Forum

According to a report, Binance's proof of reserves raises red flags. You can read about it: https://cointelegraph.com/news/binance-s-proof-of-reserves-raises-red-flags-report

Yet we maintain the stance that proof of reserve will only confuse some people to be proof that exchanges are managing customers funds appropriately, but do not be deceived, the appropriate store for you coins is self custody on noncustodial wallet.

The not posting liabilities publicly seems to be a bit of a big problem for most, I assumed users were able to locate their collateral addresses as unique to them if they're going to have a real collateral system (but that'd be really expensive).

I think binance is trying to make itself seem more functional than it is - I don't know if "binance has 97% collateral cover" would make sense though and the article says they have 101% of it when they remove margin positions which sounds like it has full collateral cover for now.

Obviously blockchains can't store the future and if there is a way to check this sort of thing with binance it'll probably be used to cause market manipulation at some point. The proof of reserves idea has been floating around for years, they either had it implemented and waiting or rushed it and it's broken (and if binance hasn't changed much since I last used them it might be the second)...

It appears that a few people are targeting Binance. Today, there were rumors that the US accused Binance of money laundering, which Binance denied. There have been some shady games going on in the crypto industry recently, and we are suffering as a result. However, funds should not be hold in any exchange, no matter how reliable it is. Nevertheless, when something bad happens in the crypto market, coins lose value. So, at the end of the day, we are in a terrible situation. It is unclear when the crypto war will end and a bull market will resume.

Others day I was reading a tweet thread, I can't find it now. They shared a lot of info including this one, I didn't trust them though. I thought they are rumor. Now it seems it isn't a rumor. A lot of shady things are going on.
It's better to have all the assets on self custody. They are simply playing with us with our money.

USDC withdrawals have also been suspended (for some networks only)[1][2] but CZ reassured us that everything is fine[3].

Rumors or not, it's probably a good idea to withdraw your funds until the storm is over.

[1] https://www.binance.com/en/network
[2] https://www.cnbc.com/2022/12/13/crypto-exchange-binance-temporarily-halts-usdc-stablecoin-withdrawals.html
[3] https://twitter.com/cz_binance/status/1602676998094069760

For me what happened to the FTX exchange, one of the valuable lessons for crypto users as a whole, for sure I'm not tempted even if Binance publishes backups or hides, maybe Binance currently has 97% collateral, not to mention the ones spread out, believe that that's not a real guarantee for anyone looking to deposit funds in the current exchange.

I remember what: @Robert Stevens said about anticipation: Proof of Reserves: Could it Have Prevented the FTX Meltdown? (https://www.coindesk.com/learn/proof-of-reserves-could-it-have-prevented-the-ftx-meltdown/), but what happened to FTX is not about the money reserves they have.
This is the most fatal, who would have thought, backup is not a guarantee.

However, a very good and memorable point for current crypto users, as suggested by: @Robert Stevens, at the end of the story.

This is what needs to be instilled in the soul of every crypto user, we never know what will happen in the future.

I've lost track of how many times I've warned that these proof of reserves that all exchanges are coming out with are little more than a marketing gimmick. They prove nothing. It won't be long before the first exchange which "proved" they were fully backed up goes bankrupt, and takes another few million customers' funds with them.

I'm not sure you can call warnings on any centralized exchange FUD right now, given the events of the last few months. But good news anyway that more people are withdrawing to their own wallets. Although perhaps the outrageous withdrawal fees that Binance charges on $2 billion of withdrawals will be enough to plug the apparent hole in their balance sheet. ;D

Claim everything is fine while simultaneously pausing withdrawals. The exact pattern of behavior we saw with Celsius. And Voyager. And BlockFi. And FTX. And the dozens of other smaller platforms which have gone bankrupt in the last few months.

But sure, leave your coins on a centralized exchange. Maybe withdraw just enough to buy yourself a clown costume for when you lose everything after months of non-stop red flags and warnings.

It seems the bar has been higher. The criticisms kept coming in. The Merkle Tree used by CZ earlier failed to assure people of its reserves. Kraken's Powell even described it as pointless.

And now he's shifting to the use of a third party auditing firm. The problem is that even the auditing firm itself did not vouch for its reserves. Neither did it vouch for the specific methodology used as demanded by Binance itself.^[1] As a matter of fact, Mazar, the auditing firm, even clarified that what it did on Binance was not even an audit. Neither was "an agreed-upon procedures engagement" a "review or other assurance engagement."

https://i.imgur.com/6Gmt9MP.png
https://twitter.com/WhaleChart/status/1602089342645817347

---

[1] https://mishtalk.com/economics/binances-alleged-crypto-audit-failed-not-even-its-auditor-would-vouch-for-it

Almost identical wording to the not-an-audit that Mazars performed for Crypto.com, which as I point out in this post (https://bitcointalk.org/index.php?topic=5425782.msg61431398#msg61431398), is completely meaningless. And again, just like the Crypto.com one, absolutely no mention of their centralized token they can print out of thin air to prop themselves up and use to buy enough bitcoin to make everything look peachy.

Here is a link to the full Binance not-an-audit: https://veritas.mazars.com/binance/Binance_POR_Report_7_December_2022.pdf

Look at point 5 on page 2. One of the ways they identified funds as belonging to Binance was as follows:

Not signing a message or making a transaction, but checking if an unknown source had "tagged" the address on a centralized website. So basically, "these funds belong to Binance because a stranger says so". With literally nothing to stop someone at Binance from tagging addresses themselves. Absolutely unbelievable.

Oh but Binance can ''burn'' they tokens and they are doing this circus trick to fool all the people how their token is special, scarce and very valuable.  :P
I posted their official reserves chart several times and they have extreme high amount of their own printed stable coin BUSD, that should be red alert for everyone, even without all the other crap they are doing.
I said t before and I will say it again CZ = Scam Bankman, so don't be surprise to see more arrests in future...
I don't care what this crooks are doing, but governments will blame Bitcoin for this and they will try to push for more strict regulations in future.

https://i.imgur.com/aVnFsWU.jpg https://i.imgur.com/LGaVFyL.jpg

Why aren't they doing proof of reserves with signed messages? That sounds the perfect use case for proving address ownership. Then you can do an audit where you hand over the firm the addresses and signed messages and then they independently perform the verification of them.

Better get your bitcoin out soon and not be one of the unlucky ones left at the end of this bank run with a worthless IOU or being told your bitcoin debt has been tokenized with a new centralized shitcoin.

Good question. Why wouldn't they do something so universally accepted and trivially simple to do? Either they can't, because they are insolvent, or they don't care enough, because they know this proof of nothing not-an-audit will fool 95% of their cash cows users who won't bother to read past the headline.

Should I be proud or sad of what is going on?  Binance wants to be seen as the savior but they definitely are not.  They are doing exactly what hurts Bitcoin the most.  Every time.  All while claiming to do the opposite and support the economy.

With or without proof of reserves, it is still risky.  As if you gave me money and one year later I showed you the bill you gave me then put it right back into my pocket.  Now you have seen it.  But do you feel safe knowing it is still in my pocket?

Will it hurt Binance THAT much to have a thick amount of money outflow when almost 50 percent of it is withdrawn in Binance's Currency?  Makes no sense.  Withdraw in fear from Binance to Binance's Token.  What?

This storm will teach a lot of people a tough but very good lesson.  We are likely only years away from the moment many will realize why they should have never trusted Third Parties in the first place.

-
Regards,
PrivacyG

More reasons not to store your coins in any exchange or custodial wallets. Your coins are never safe there. You don't know what they are doing with your coins. Once you send them your coins, it is no longer your coins. The coins now belong to them. Its like giving them away your coins to them but you don't know why or what they are doing with your coins.  You only trust them to return it to you when you ask for it, but you if they don't you can't do anything. Months ago, no one knew this would happen to FTX and they trusted them with all their coins. The result was them only losing everything. Who knows... binance might also face the same fate. Best store your coins in your own wallet!

And now that all efforts of CZ and Binance to prove their worth are seemingly falling into the gutter, they're now pointing fingers at everybody else. After the pointless Merkle tree and the shady proof of reserves failed to make depositors feel at ease, and did not stop them from withdrawing their funds off Binance, they are now attacking the capability of everybody else to self-custody.

It was in CZ's AMA that he claimed that "for 99% of people today, asking them to hold crypto on their own, they will end up losing it."^[1] This is obviously an exaggeration to stress a point, but I don't know if this is valid enough to make Binance relevant. If I'm actually incapable of being my own bank, is a centralized exchange a better option? I don't think so. I guess that's a bit worse than myself. I'd rather just keep my hardware wallet and my seed phrase in a bank's safe.

Secondly, Binance is an exchange, for heaven's sake. If people don't trade, their funds have no business in Binance. So it's actually ridiculous to offer Binance as a solution. It's a wrong solution to a wrong problem.

---

[1] https://twitter.com/i/spaces/1BdGYykXBDyGX?s=20

Lol what a clown and what a difference between CZ and Paxful exchange CEO Ray Youssef who decided to send email to their users on the weekly basis, suggesting people not to store their crypto in any exchange, including their own.

---

In other news, Mazars decided to stop with all crypto exchanges proof of reserve audits.

The people who don't know and don't want to know will continue to keep putting money into places like Binance / FTX / Wherever because they just want the magical internet money.
Once Binance / FTX / Wherever implodes they move to the next place because they know better now and still want the magical internet money.
<sigh>
When a place a sleazy as Mazars decides that even they don't want to deal with this kind of crap you know you it's bad.

Hopefully not too many people loose too much money.

-Dave

I wouldn't say no one knew. Some of us have been saying for years how risky these platforms are, and pointing out that their terms of use allow them to spend or gamble your coins in any way they like with absolutely no guarantee you would ever see a single satoshi again. But most people dismissed these warnings because they were blinded by the greed of obviously unsustainable APY returns.

You are too stupid to write down 12 words on a piece of paper. So give me all your money instead. Freedom is slavery. Ignorance is strength.  ::)

Don't blame them. They have been asked by a number of exchanges to perform a very specific task looking at a very small and tightly controlled snapshot, which they have done. These exchanges have then blatantly lied and presented these documents as full audits proving complete solvency, which they do not at all. Mazars are protecting themselves from legal issues from these exchanges deliberately misrepresenting their findings when they too collapse and go bankrupt.

Which was said just before and now for weeks after the FTX collapse. There are a few reasons Binance might last longer, but when they had to pull all their funds in and start doing all this other crap it just screams fraud.


You left out Oceania has always been at war with Eastasia [ now we both get banned for plagiarism :-) ]

There is a sucker born every minute and so on. But I also still believe it's what I said a few weeks ago, people have been told to leave their money in banks, their stocks in their brokerage account and so on. They don't see this as any different, we have to keep hitting them over the head with the clue by four till they finally get it.


https://www.urbandictionary.com/define.php?term=clue%20by%20four



It's not blaming them, they will audit anything anyway you want. But that fact that a company that has audited and produced so many reports over the years for businesses and people that turned out to be frauds and even THEY backed away from this really says that even a company that had no dignity / morals / scruples / whatever found a limit to what they would do. That is some scary shit right there.

-Dave

Even now there are highly upvoted posts on Reddit and highly liked/shared posts on Twitter denouncing every warning about Binance as FUD. Just as there were highly upvoted posts denouncing every warning about FTX, about Celsius, about Voyager, yadda yadda yadda. At this stage, I am just assuming that any account telling you that Binance is too big to fail and it is perfectly safe to leave your coins with them after the events of the last few months is either owned by Binance or is being paid by Binance to try to stop the bank run they are experiencing.

If half a dozen major banks had all collapsed in the space of a few weeks, then I'm pretty sure they would be getting worried about their fiat. But for some reason crypto exchanges can drop like flies and everyone still thinks "fUnDs ArE sAfU". ::)

This Binance thing, Mazar, etc. made me smile, and I do feel bad about it, because I shouldn't take joy from other people all loving on BNB and Binance et al, and having known personally some people fked thanks to FTX, there are bound to be many more innocents who'll be victims if the #1 exchange folds...

... but we should see better proof of reserves in future, that's the good thing to come out of it.

Wonder when anyone's going to try and find the chinks in NEXO's version of that. It's been over a year since they introduced it: https://real-time-attest.trustexplorer.io/nexo

There is no such thing as better proof of reserves. As I've said over and over and over, proof of reserves with proof of liabilities is utterly meaningless. It does not matter in the slightest if Binance can prove they are holding a 100,000 BTC. We have no idea if customer deposits on Binance total 100,000 BTC or 200,000 BTC, or more. Their proof of reserves could be enough to cover everything, or it could be a tiny fraction and they are massively insolvent. And we'll never know because either we will never see a proof of liabilities, or we will get some small, tightly controlled snapshot that only shows what the exchange wants us to see.

Downloaded the PDF from the link you provided. Second paragraph in (emphasis mine):
So they include coins which Nexo has handed out to third parties, gambled on derivatives, and future loan repayments in what they class as assets. This is exactly the position that the likes of Celsius and Voyager were in when they went bankrupt - holding a tiny portion of deposits themselves, with the rest being handed out to variety of shady third parties in order to try to make themselves more profits.

I don't think any good thing can come out of it, except we can see an accurate proof of solvency, which may not be hard for the exchange to provide, but they would refuse to do so because they are mostly insolvent. If they can accurately provide wallets that hold their reserve funds and then sign a message from those wallets proving that they can truly move the funds out of the wallet, and then accurately provide information on funds that all customers are owed, that's the only way they can prove solvency, because we'll all be able to ascertain if the funds in their reserve can cover what all customers are owed if they all decide to withdraw their money at exactly the same time.

Do agree it's pointless without knowing liabities is meaningless because they'll always cook the books to fit their needs -- all banks do this, and that's fractional (or in the case of US, zero) reserves -- but I do think they can be better version of proof of reserves -- if everything is real time, on chain (including liabilities!).

That said, it's a business model that needs to make profit, therefore, needs to take on risks. And that risk behaviour of banking systems that CEXs follow will always mean customers are the ones bearing ALL the risk.


No doubt will fail at some point, a point probably closer than anyone including Nexo themselves will think ever predict. Only reason I brought up Nexo is they seem to have escaped scrutiny despite making large moves this year. They're not considered a big player but are under the radar for their exposure in EU and rest of the world, while also owning a controlling stake in a small US bank. I suspect it'll take someone like them to fail to produce the next domino fall.

I cannot see a trustless way this can be done. It's not like proof of reserves where they can sign a message from bitcoin addresses,  proving access to a certain number of coins. Liabilities are simply stored in the exchange's own internal database. If they say "These are our liabilities", then you are trusting the exchange. If they get an auditor to say it, then you are trusting the auditor. Even these Merkle trees they produce are easily manipulated by leaving out some liabilities or adding in some accounts with negative value.

How can they put their liabilities on chain so they can be independently verified?

Yeah. I suppose everyone has been too busy talking about FTX and the others recently, but every centralized exchange is in the same risky boat right now.

Binance reserves is okay, according to this.



Two charts based on the same facts, but presenting one without the other can skew perceptions.

Binance BTC balance basically flat at 400k BTC since since mid 2021.

Source https://twitter.com/ergobtc/status/1604289386442788864


It has be very obvious that there are groups of people in the cryptospace that are creating a coordinated attack and negative propaganda against Binance. I am not defending Binance and my speculation on Binance as being used in a global moneylaundering ring does not change. However, we should also see reality.

Here is a story from FTX which proves what I've been saying all along: https://news.yahoo.com/ftx-execs-hid-8-billion-173336895.html. FTX created a single account on their system, not belonging to any person, and put $8 billion of unaccounted for liabilities in to it in order to balance their books.

And so what stops any other centralized exchange doing the same thing? Absolutely nothing. They create a Merkle tree which includes a sham account or two with a balance of negative $8 billion. Oh look! Everything balances up perfectly. How convenient. Or maybe they have some third parties "audit" their books and bottom lines. Bearing in mind that none of these audits were actual audits and were just "agreed upon procedures" where the third parties were only given access to what the exchange wanted them to have access to, and so hidden in those books are a few sham accounts holding billions in made up liabilities. And surprise again! Everything balances up just fine. And all the time the exchange is actually massively insolvent and your coins are already lost.