French accounting firm Mazars is pausing all its work with crypto firms including, Crypto.com, KuCoin, and Binance, according to a spokesperson for Binance.
Mazars has since deleted all crypto reports from its website.
In a statement, a Mazars spokesperson told Yahoo Finance the firm, “paused its activity relating to the provision of Proof of Reserves Reports for entities in the cryptocurrency sector due to concerns regarding the way these reports are understood by the public.”
Mazars noted: “Proof of Reserves Reports are performed in accordance with Reporting Standards relevant to an Agreed Upon Procedures report. They do not constitute either an assurance or an audit opinion on subject matter. Instead they report limited findings based on the agreed procedures performed on the subject matter at a historical point in time.”
News of Mazars’ decision was first reported by Bloomberg. Mazars’ pullback from the crypto market comes as customers and investors seek greater transparency surrounding the crypto exchanges they use in the wake of the collapse of FTX.
Investors have put a spotlight on Binance, the largest crypto exchange, after it delivered a report from Mazars last week, which fell short of showing full transparency. The exchange also temporarily halted withdrawals of the stablecoin USDC citing to daily banking hour constraints during a record period of withdrawals.
Analysts and other market participants had criticized reports by Mazars previously, as the accounting firm would not offer an opinion on the validity of their clients’ financial information or an assurance conclusion.
“Unfortunately, this means that we will not be able to work with Mazars for the moment,” Dewi Mustajab, a global communications lead for Binance, shared with Yahoo Finance.
Crypto.com, which engaged Mazars in November and published its report on December 7, could not address the accounting firm’s decision to pause, but stated: “We will continue to engage with reputable audit firms in 2023 and beyond as we seek to increase transparency across the entire industry.”
KuCoin, which had a proof of reserve report by Mazars published December 8, also said it is, “open to work with any leading and reputable auditor,” according to a spokesperson.
Following this news, crypto markets were broadly under pressure, with bitcoin falling below $17,000; earlier this week, bitcoin rose above $18,000 for the first time since the collapse of FTX.
Between Monday and Wednesday, Binance saw a total $6 billion in outflows, its largest customer withdrawal period since 2020, according to data from Binance and CryptoQuant. However, against its ratio of reserves, the company has withstood larger waves of withdrawals in 2021 and 2020, according to CryptoQuant data.
On Wednesday, Binance’s CEO Changpeng Zhao spoke over Twitter Spaces, calling the moment a “stress test,” though perhaps not offering the assurance investors needed.
Zhao said proving asset reserves “is not as simple of an exercise as people think” and that the company will roll out more information “in the next couple of weeks.”
Zhao went on to outline how Binance’s worst case scenario should look. “As long as we fail honorably and credibly, we let people withdraw their funds because the company ran out of money, that’s okay,” he said.
Crypto exchanges are increasingly on the defensive since FTX revealed it commingled customer funds with those belonging to its sibling hedge fund, Alameda Research.
Under new management, FTX is looking to sell four parts of its business in Chapter 11, according to reports, in an effort to earn back what its new CEO said during Congressional testimony on Tuesday was a hole in excess of $7 billion.
Though a real financial audit is paramount, Binance’s financial position is, at least, not as precarious as FTX, according to a report by blockchain analytics platform CryptoQuant.
According to the report, CryptoQuant was able to verify Mazars’ report, showing Binance’s bitcoin holdings are fully collateralized. It also said the company wasn’t showing “FTX-like” behavior, meaning its assets haven’t been moved to non-Binance wallets. According to the findings, Binance also has a “clean reserve,” meaning the proportion of its own proprietary token, BNB, is “still a low proportion of its assets.”
“Our analysis should not be interpreted as a favorable opinion of Binance as a company, the ecosystem of the BSC/BNB networks, or the BNB token. It is merely a sign that the amount of BTC Binance exchange says it holds as liabilities at the moment the PoR report was conducted makes sense, according to on-chain data,” CryptoQuant stated in its report.
David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on Twitter at @DsHollers
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