Proof of reserves? Insurance fund? Best I can do is a random number generator!

[Z-tight]

Seriously though, I am scared right now for my bitcoins because they're not in a non-custodial wallet and I think that this will be the final straw, I'll be contacting someone.

If i may, why should you be contacting someone, if your BTC isn't in your self custody, then immediately move it to a self custodial wallet, Electrum, Sparrow, BlueWallet are all good options for you to choose from.

I am not surprised to hear this, because some other people have also seen it that exchanges goes as far as borrowing funds before audit and return the funds after audit to deceive people that they have enough prove of reserve.

Do they even have to borrow money, they could just print their shit tokens out of this air and use it to buy assets to 'prove' that their reserves covers all liabilities.

Binance last audit was not accepted by people because they said there is no transparency in their PoR. If Binance the biggest exchange can do this then other smaller exchanges will learn and copy from them.

Binance may be a 'big' exchange, but they are just as shady as many other centralized exchanges, with their fractional reserve and proof of reserve scam. Proof of reserve would never make sense because the exchange can do anything to balance their books and make everything good, they can show us proof of reserves without us knowing what their full liabilities are, and even if they show the liabilities, we can't be sure if it is true.

[1714496315]

1714496315

[1714496315]

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[1714496315]

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[ZAINmalik75]

This is the kind of bullshit centralized exchanges are using in their "proof of reserves", "safu funds", "insurance funds", "collateral funds", "1-to-1 matching reports", and all the other trash they peddle to convince you your funds are totally safe. Literal random number generators. They will do and say anything to get you to hand over your coins to them. Don't fall it.

I was not following this trial, as I am not affected by FTX exchange, I had no funds on it, but some of our local community members do have like underdress. He has a decent amount on FTX. And we all were hoping good for it. But as I said, I had no funds, so I did not take an interest in it when I should have.

Well, thanks for this post, as now I get to know what is happening there, and I am really shocked to see that, how they are making fools of nontechnical people who do not know the difference between code and can not audit the whole reports, as they do not aware of he programming languages. But thanks to the developers who brought such differences in front of us.

We should really avoid centralized exchanges, no matter what, how much we are dependent on them, we should prefer a non custodial wallet not custodial.

[GbitG]

I couldn't image if Binance is bankrupt, how bad is the chaos affecting Bitcoin holder since most of people hold their funds in Binance.

If this mishap is really based on truth, then the cover of this disaster, i.e., Binance Bankrupt, will be beyond imagination. Why are 150 million people connected to Binance with their assets? If Binance shuts down or goes bankrupt, it may cause a sell-off panic in the cryptocurrency market due to the sell-off in the prices of bitcoin and other coins. A reduction can be seen that has not been recorded in history. Obviously, Binance is the world's top exchange, and Binance has allowed small exchanges and institutional investors to collateralize crypto assets, so if something happens to Binance, these small exchanges will also be required before Binance can cause panic in the market.

In the end, let me know by adding that I don't know that these people are curious to dig their funds on the one hand, and on the other hand, they are depending on them by giving their funds assets to the exchanges. Although exchanges do not give you a complete guarantee and security of your funds, when a self-custody (hardware wallet) supports you with all these associated limitations, what is the need to give authority to exchanges?

Therefore, the purpose of speaking was to keep the fund in hardware wallets and not give so much importance to exchanges; no matter how big the exchange is, it should not be kept safe to keep its assets. You should take steps yourself instead of depending on others.

[Hueristic]

[o_e_l_e_o]

Do they even have to borrow money, they could just print their shit tokens out of this air and use it to buy assets to 'prove' that their reserves covers all liabilities.

Exactly. It's happened many times before. An exchanges goes bankrupt because of their own shady practices or because of a hack, so they either launch a shitcoin and "pay" back their users in this worthless shitcoin instead of bitcoin, or they just print a few hundred million of an existing shitcoin out of nothing to keep themselves solvent. A prime example of this is Bitfinex and Tether, where they printed almost a billion USDT out of nothing and gave it to themselves after they were hacked and insolvent.


My most recent favorite snippet from the trial below. Gary Wang was a the CTO of FTX and co-founder alongside SBF:

Lawyer: Are you aware of the difference between solvency and liquidity?
Gary Wang: Now I am.

What an absolute clown show.

[Hamza2424]

Exactly. It's happened many times before. An exchanges goes bankrupt because of their own shady practices or because of a hack, so they either launch a shitcoin and "pay" back their users in this worthless shitcoin instead of bitcoin, or they just print a few hundred million of an existing shitcoin out of nothing to keep themselves solvent. A prime example of this is Bitfinex and Tether, where they printed almost a billion USDT out of nothing and gave it to themselves after they were hacked and insolvent.

Still, people consider USDT trustworthy, it's all the game of valuation, there is a need for the realization that the value we need is not a stable currency it is Bitcoin. I'm afraid until we are gonna learn there will be another.

I couldn't image if Binance is bankrupt, how bad is the chaos affecting Bitcoin holder since most of people hold their funds in Binance.

If this mishap is really based on truth, then the cover of this disaster, i.e., Binance Bankrupt, will be beyond imagination. Why are 150 million people connected to Binance with their assets? If Binance shuts down or goes bankrupt, it may cause a sell-off panic in the cryptocurrency market due to the sell-off in the prices of bitcoin and other coins.

This is the hit I'm talking about, non-custodial holdings are the only solution to avoid it but it's a hard job to educate people for the possible outcomes. SAFU is not a sign of reliability, it point out something better to make an exit.

[Fiatless]

Do they even have to borrow money, they could just print their shit tokens out of this air and use it to buy assets to 'prove' that their reserves covers all liabilities.

Exactly. It's happened many times before. An exchanges goes bankrupt because of their own shady practices or because of a hack, so they either launch a shitcoin and "pay" back their users in this worthless shitcoin instead of bitcoin, or they just print a few hundred million of an existing shitcoin out of nothing to keep themselves solvent. A prime example of this is Bitfinex and Tether, where they printed almost a billion USDT out of nothing and gave it to themselves after they were hacked and insolvent.

This is indeed an eye-opener never to rely on these exchanges no matter how influential or renowned they claim to be. This issue is like mismanaging funds somebody put in your custody. And when he requests his funds, you tell him not to worry that you have another currency. And you go to your room and bring out some coloured papers and tell him that you will pay him with this. You still go ahead to convince him that in a few months, these coloured papers will be worth more than the dollars. Sadly many people still believe these lies and invest in these shitcoin.     

Still, people consider USDT trustworthy, it's all the game of valuation, there is a need for the realization that the value we need is not a stable currency it is Bitcoin. I'm afraid until we are gonna learn there will be another.

There is nothing stable about the USDT. How are we sure that Tether has the assets or reserve it claims it owns? Just like FTX the shady deals engaged by these centralised firms always come to light after it has collapsed. 

[o_e_l_e_o]

Some new absolute hilarity from the trial, this time involving BlockFi, which lost $1 billion in the FTX collapse and ended up collapsing themselves. Zac Prince was the CEO of BlockFi (emphasis added):

Prince testified to all of this on Friday, and outlined the details of how BlockFi evaluated whether to lend to a given institution. The company would review the financial records of a prospective borrower and evaluate the likelihood the company could repay the loans it was requesting. Alameda Research never provided BlockFi with audited financial statements, testified Prince, but that was the norm for BlockFi’s crypto customers — “because of issues with getting audits as a cryptocurrency firm”, he reasoned.

“We always relied on the information that we were given by counterparties as being truthful and accurate,” said Prince. That was ultimately their downfall. The statements provided by Alameda didn’t disclose the true extent of the firm’s liabilities, nor the existence of substantial loans from Alameda to FTX and company executives.

So the entirety of BlockFi's "research" and "evaluation" as to whether they should lend over a billion dollars to another company consisted of "Hey, we can totally trust you, right?", without any independent audits, examination, or verification of any sort whatsoever. So essentially FTX said "You can totally trust us, bro", and BlockFi said "OK, here's a billion dollars of our customers' money!"

How are we sure that Tether has the assets or reserve it claims it owns?

It's worse than that - we know for a fact that Tether doesn't have the assets it claims to have. They revealed in court that at one point only 14% of USDT was actually collateralized: https://bitcointalk.org/index.php?topic=5322147.msg56656992#msg56656992. They also admitted that their collateral includes loan repayments they are making to themselves after printing almost $1 billion USDT out of nothing and loaning it to themselves to stop themselves going bankrupt. So print USDT out of thin air, loan it to yourself, claim USDT is backed up by future loan repayments.

[Isuru_]

This is the kind of bullshit centralized exchanges are using in their "proof of reserves", "safu funds", "insurance funds", "collateral funds", "1-to-1 matching reports", and all the other trash they peddle to convince you your funds are totally safe. Literal random number generators. They will do and say anything to get you to hand over your coins to them. Don't fall it.

I'm not surprised with this development, centralized services will do anything to look trustworthy in the eyes of their customers but we know all they're doing is just marketing and don't actually care about their customers. Proof of reserve my foot, the only time I'll believe a centralized exchange has a proof of reserve is when their reserve/insurance fund are in Bitcoin and held in a multisign offline wallet which they'll sign a message including the Bitcoin address which can be verified by everyone and we monitor the address constantly.

Without that anything they say isn't worth believing. Moreover why would they hold insurance funds in their native token. Obviously they're doing so for them to easily manipulate the price (of funds said to be in reserved). No centralized exchange should be trusted irrespective of how big they're. They're here to make money and they'll lie, deceive everyone until they finally get exposed and exit scam just as FTX did.

For newbies that'll come across this thread, if you still have coins on exchanges, get them off right away. Exchanges aren't wallet to store your coins with them and don't believe whatever excuse they'll give to make you believe they'll look after your coins. Take the security of your coins as your personal business and store them offline in a hardware wallet.

I agree with you. Proof of reserves is a good step, but it's not enough to guarantee that a centralized exchange is safe. There are other things to consider, like the people who run the exchange, how they do business, and how much money they have.

I'm also worried that many centralized exchanges keep their insurance funds in their own tokens. This is a conflict of interest, because it gives the exchange an incentive to manipulate the price of its token.

[Fiatless]

I agree with you. Proof of reserves is a good step, but it's not enough to guarantee that a centralized exchange is safe. There are other things to consider, like the people who run the exchange, how they do business, and how much money they have.

How will you know the people who run these centralised exchanges? Before the fall of FTX  Sam Bankman-Fried was seen as a financial titan and a well-celebrated philanthropist. Almost all the media houses were singing his praise and FTX was seen as a successful business as they splashed millions on endorsement deals and marketing. Nobody knew that the company was a walking corpse until it collapsed. The operations of most of these exchanges are secret and their audit statements are fake and fabricated. You cannot dictate how much they own because they can always randomly generate figures without any verifiable proof. The best option will always be to "stay away from centralization"       

[Z-tight]

I agree with you. Proof of reserves is a good step, but it's not enough to guarantee that a centralized exchange is safe. There are other things to consider, like the people who run the exchange, how they do business, and how much money they have.

People like CZ, who believe that 99% of funds in self custody would be lost, and that funds are only #SaFu when you store them with Binance. Take note that nothing should serve as a guarantee that any centralized exchange is safe, nothing at all. Centralized exchanges do business through fractional reserve scam, they take your money and try to use it to make more money for themselves, and how can you know how much they have, and if it is enough to cover liabilities, either way you have to trust what they say, and you shouldn't. Store your funds only in a self custodial wallet.

I'm also worried that many centralized exchanges keep their insurance funds in their own tokens. This is a conflict of interest, because it gives the exchange an incentive to manipulate the price of its token.

They can print their tokens just out of thin air, so they rather use your money to either trade or gamble in other investments and see how much profit they can make from it, and if they fail and become insolvent, they print out millions of their tokens out of thin air and try to use it to stay afloat. By the way, why should you be worried about what centralized exchanges do, when you can store your funds the right way.

[o_e_l_e_o]

Nobody knew that the company was a walking corpse until it collapsed. The operations of most of these exchanges are secret and their audit statements are fake and fabricated. You cannot dictate how much they own because they can always randomly generate figures without any verifiable proof. The best option will always be to "stay away from centralization"

I wouldn't say "nobody knew". There have been some of us who have been pointing out for years how shady these centralized exchanges are. 18 months before BlockFi collapse I was making posts warning about how dangerous it is leaving your coins with them. Even their Terms of Service clearly stated that they were taking your money and handing it out to literally anyone who wanted it with absolutely zero collateral or guarantees. Then when these platforms and collapse and people are shocked that the platforms were doing exactly what they said they were doing in their Terms of Service.

It's was very obvious to anyone paying attention that the likes of BlockFi, Celsius, Voyager, FTX, and so on, were massive scams. But lots people were blinded by promises of obviously unsustainable rewards and ignored all the warnings. And now it's obvious to anyone paying attention that the likes of Binance and Tether are running fractional reserve scams, but lots of people ignore these warnings out of greed or convenience.

[stompix]

It really amazes me that such a company could even do business in the US, because what we are seeing now, someone should have noticed and reacted earlier and prevented everything from going to hell. How realistic is it that no one knew about all these illogicalities within FTX until it was too late, isn't there someone who oversees such things?

A bit late to reply but there is one thing I must mention!
Us, Japan, EU, south whatever, there is simply not enough workforce to monitor everything, and these companies know it, you can't have a million supervising a million companies, they all have to do with the numbers these provide, and even if on inspection they find a flaw that will be discovered only after a trimester and then real action will take further months.

Besides, the major fuck up was not even over ftx.us but com, which was not US jurisdiction, in September 2021 was based in HK and then in the Bahamas, just like how CZ keeps binance.us clean so did SBF.

It's worse than that - we know for a fact that Tether doesn't have the assets it claims to have. They revealed in court that at one point only 14% of USDT was actually collateralized: https://bitcointalk.org/index.php?topic=5322147.msg56656992#msg56656992. They also admitted that their collateral includes loan repayments they are making to themselves after printing almost $1 billion USDT out of nothing and loaning it to themselves to stop themselves going bankrupt. So print USDT out of thin air, loan it to yourself, claim USDT is backed up by future loan repayments.

The situation is better now, probably because of the last bull run, not that they have proved beyond a doubt they have a 1:1 backing but even if we ignore the parts of the audit that can't be trusted they do have at least 40% of those sums in treasury bills, that is the only sure thing they can't fake and can and has been checked, the rest, god knows and with their business practice I'm a bit unsure even he will be able to come with the right numbers.

My most recent favorite snippet from the trial below. Gary Wang was a the CTO of FTX and co-founder alongside SBF:

Lawyer: Are you aware of the difference between solvency and liquidity?
Gary Wang: Now I am.

What an absolute clown show.

If he tried to be a smart ass, then he's an asshole, if he was sincere then probably this is just the tip of shitshow we're about to discover.

[franky1]

So the entirety of BlockFi's "research" and "evaluation" as to whether they should lend over a billion dollars to another company consisted of "Hey, we can totally trust you, right?", without any independent audits, examination, or verification of any sort whatsoever. So essentially FTX said "You can totally trust us, bro", and BlockFi said "OK, here's a billion dollars of our customers' money!"

many large investors failed that verification check. simply because they knew another institution/influencer was promoting FTX, they think the first,second and third one vetted and verified FTX so the fourth didnt have to. yet first second and third didnt either..
EG FTX  promoted shark tank presenter, football millionaire and others as promoters.. so real investors thought it must be legit.

if companies CFO's do less research and value surveys compared to lets say the surveys needed for just a $100k mortgage.. when investing millions then those companies CFO's need to be challenged and maybe even taken to court themselves as they put their own business in jeopardy

its become a very well known practice that investors dont pay money to do actual due diligence because they have the mindset of, if the invested company lies about contracted details, the investors can sue the invested company for malpractice.

[Doan9269]

I agree with you. Proof of reserves is a good step, but it's not enough to guarantee that a centralized exchange is safe. There are other things to consider, like the people who run the exchange, how they do business, and how much money they have.

People like CZ, who believe that 99% of funds in self custody would be lost, and that funds are only #SaFu when you store them with Binance. Take note that nothing should serve as a guarantee that any centralized exchange is safe, nothing at all. Centralized exchanges do business through fractional reserve scam, they take your money and try to use it to make more money for themselves, and how can you know how much they have, and if it is enough to cover liabilities, either way you have to trust what they say, and you shouldn't. Store your funds only in a self custodial wallet.

I'm also worried that many centralized exchanges keep their insurance funds in their own tokens. This is a conflict of interest, because it gives the exchange an incentive to manipulate the price of its token.

They can print their tokens just out of thin air, so they rather use your money to either trade or gamble in other investments and see how much profit they can make from it, and if they fail and become insolvent, they print out millions of their tokens out of thin air and try to use it to stay afloat. By the way, why should you be worried about what centralized exchanges do, when you can store your funds the right way.

No wonder exchanges will always accept any shitcoins to be enlisted on their platform once they were able to reach a greed business terms and fund the project for a while, this also call for more caution for potential investors seeking for highly fast growing currencies, most of them were nothing but a hype to attract for more investors, thanks that we have the use of altcoins to differentiate bitcoin from other currencies in cryptocurrency, so CZ is as good as any average businessman and understand the way to persuade people for a business patronage using his exchange even though he knows himself that non custodial wallet is the best means of having crypto assets.

[raumonds]

Ugh, the whole FTX trial mess is giving me a headache. It's crazy how they're basically treating their insurance fund like Monopoly money. Makes you wonder how many other exchanges are pulling the same stunt, huh? Thanks for sharing those code snippets. Eye-opening stuff.

[franky1]

Us, Japan, EU, south whatever, there is simply not enough workforce to monitor everything, and these companies know it, you can't have a million supervising a million companies, they all have to do with the numbers these provide, and even if on inspection they find a flaw that will be discovered only after a trimester and then real action will take further months.

Besides, the major fuck up was not even over ftx.us but com, which was not US jurisdiction, in September 2021 was based in HK and then in the Bahamas, just like how CZ keeps binance.us clean so did SBF.

your learning finally.. but ontop of not having enugh workforce,  regulators are not pro-active investigators/inspectors. they do not actively audit companies to any schedule. instead they wait in their offices to receive grievance reports from customers or internal self reporting from the companies to then act. EG when the company itself does its quarterly reporting. if the regulators see some dodgy math in a companies report to them, then they react

[philipma1957]

Us, Japan, EU, south whatever, there is simply not enough workforce to monitor everything, and these companies know it, you can't have a million supervising a million companies, they all have to do with the numbers these provide, and even if on inspection they find a flaw that will be discovered only after a trimester and then real action will take further months.

Besides, the major fuck up was not even over ftx.us but com, which was not US jurisdiction, in September 2021 was based in HK and then in the Bahamas, just like how CZ keeps binance.us clean so did SBF.

your learning finally.. but ontop of not having enugh workforce,  regulators are not pro-active investigators/inspectors. they do not actively audit companies to any schedule. instead they wait in their offices to receive grievance reports from customers or internal self reporting from the companies to then act. EG when the company itself does its quarterly reporting. if the regulators see some dodgy math in a companies report to them, then they react

And they offer reward money 💰 for correctly reported tax avoidance scams.

Every year the I.R.S. gives millions to citizens that make correct reporting on a tax scammer.


https://www.irs.gov/compliance/whistleblower-office

legit link above.

and the irs is not the only gov agency with these programs.

[hatshepsut93]

People who still hold their funds in Binance are either ignorant, not aware of the recent events regarding centralized exchanges & lending and earning platforms or they think Binance is too big to fail. If Binance bites the dust they'll be the ones affected and a million other holders of shitcoins, the BTC network will be just fine with or without Binance.

I want to believe that the majority of coins that are held on exchanges are owned by day traders who have little choice but to keep their coins there, because of transaction speed and costs. Because it should be a common wisdom by now that coins held on exchanges are almost as good as gone in the long term.

[franky1]

Us, Japan, EU, south whatever, there is simply not enough workforce to monitor everything, and these companies know it, you can't have a million supervising a million companies, they all have to do with the numbers these provide, and even if on inspection they find a flaw that will be discovered only after a trimester and then real action will take further months.

Besides, the major fuck up was not even over ftx.us but com, which was not US jurisdiction, in September 2021 was based in HK and then in the Bahamas, just like how CZ keeps binance.us clean so did SBF.

your learning finally.. but ontop of not having enugh workforce,  regulators are not pro-active investigators/inspectors. they do not actively audit companies to any schedule. instead they wait in their offices to receive grievance reports from customers or internal self reporting from the companies to then act. EG when the company itself does its quarterly reporting. if the regulators see some dodgy math in a companies report to them, then they react

And they offer reward money 💰 for correctly reported tax avoidance scams.

Every year the I.R.S. gives millions to citizens that make correct reporting on a tax scammer.


https://www.irs.gov/compliance/whistleblower-office

legit link above.

and the irs is not the only gov agency with these programs.

only if the IRS can collect proceeds.. which is why many businesses file bankruptcy rather then pay out