Binance’s First PoR Audit Report Shows Overcollateralized Holdings

The initial audit report of Binance over its proof-of-reserve has disclosed that the firm had enough assets for huge consumer withdrawals while the clients had put sufficient margin for the collateralization of the leveraged margin.

On the 22nd of the previous month, the PoR audit was organized by the South Africa-based Mazers (an international entity for advisory, tax, and audit purposes).

Binance Organizes Merkle Tree Audit

In the respective audit, several methods were implemented to validate that the company had adequate assets to carry consumer withdrawals.

In the first place, the auditing company autonomously synchronized the asset balances from the wallet addresses related to Binance Smart Chain, Ethereum, Bitcoin, and BNB Chain, to the Asset Balance Report that the management of the crypto exchange provided.

The firm discovered a variance of less than one percent in the assets. Mazers directed the management of Binance to shift holdings from a particular wallet address to guarantee that the private key was owned by them.

The transfers were validated on BSCScan and Etherscan, where the auditing company confirmed that the engaged addresses were marked as linked to the crypto exchange.

After that, Mazers observed that the management of Binance with the utilization of modified strips of the internal code to bring out consumer liability reports precisely. The respective reports brought to the front the funds owed as well as receivable by the Binance consumers.

Clients to whom the crypto exchange had lent funds for leveraged trading were having a negative balance according to the report.

The company then confirmed that the balances were accurate. Following that, a proprietary Merkle Tree developer was utilized by the auditing firm for the calculation of the Merkle root hash of the entirety of the consumer balances.

An auditor can utilize the Merkle root hash (which is a cryptographically safe fingerprint) for the validation of the asset balance possessed by a crypto exchange. It permits validation while restricting access to client information.

The users of Binance can be a part of the Merkle root hash on the website of Mazers to get to their exclusive Merkle leaf for the confirmation of the balances present on the exchange platform at the hash calculation time. A few of the customers have mentioned that they have been facing difficulty while carrying out that process.

In the end, the auditing company additionally witnessed that the positions of the consumers involved in leveraged trading were overcollateralized by 101%. The overall response of the crypto community on Twitter was positive for the Binance audit.

Nonetheless, people condemned the crypto exchange for the selection of Mazers (a comparatively anonymous company) to perform the audit.

Frequent PoR Audits to Regain Trust in the Crypto Market

Though the audits related to the proof of reserves have attracted critics arguing that a crypto exchange company is capable of borrowing assets for colluding with the auditors or spoofing their reserves, they could become mandatory for the protection of consumer funds when the Federal Deposit Insurance is not available.

Apart from that, several crypto exchanges, taking into account Binance, do not have the status of public firms. Therefore, there is no requirement for them to abide by the financial reporting regulations in jurisdictions such as the United States.

Normally published auditing reports can pave the way toward an atmosphere of legitimacy at a time when the crypto market is attempting to maintain investor trust after the top crypto players’ decline this year.