"Binance has said it holds more than $60bn in assets, enough to honour withdrawals. The company’s disclosures do not include its liabilities, which makes it difficult to ascertain its financial health."
I don't think FTX actually applied or passed GAAP. From the filings it is clear they couldn't have. They barely have records of their liabilities, and definitely not of their assets. I am not even touching co-mingling of different classes of accounts.
The statement you are referencing is another lie to customers and investors.
I know they employed a "Decentraland" sketchy "auditor." But that's it. It is like employing me to do your haircut -- you are 100% screwed and not getting a haircut, but some hair will be cut.
They didn't say that they passed, just that they claimed to "complete requirements" needed to pass. The financial engineering version of lying with facts like "assembled in USA from foreign components".
He doesn't seem to mention what third party completed the audit, and given what we know about FTX's accounting now that means it was either an internal audit or SBF was lying.
Reading it doesn’t it say they have completed the requirements to pass but haven’t actually passed? Seems like the kind of word play that should send red flags.
Maybe CZs attempt to take down a competitor by leaking information wasn’t a good idea after all. Sad to see people hurt as it backfires in his face. No amount of public relations or spin will save binance at this point. The run has begun. It will seem slow at first and then all at once.
The only thing that would save it would be a bail out by the Chinese government.
A GAAP audit is not a test for whether or not you are broke.
It is also not a test of whether your financials are honest (except in a very limited sense).
It is a test of whether or not your various pieces of financial information are internally consistent given a standard set of definitions of how pieces should relate, and therefore that summary documents like the balance sheet are accurate, assuming the accuracy of underlying records.
While it is an important quality of work check for internal accounting, if you wouldn’t trust a company without a GAAP audit, there are very few scenarios where having the audit should significantly move the needle of trust.
Prager Metis and Armanino worked with FTX, but I can’t find anything showing they completed an audit. (Far from blameless. Both seem riddled with issues [1].)
"CoinDesk obtained the audited financial statements of West Realm Shires, also known as FTX US, and FTX Trading Ltd., the combined offshore Bahamas-based entity that includes an exchange catering to non-U.S. customers and Alameda, the proprietary trading operation.
It’s not clear why FTX commissioned two different audit firms to audit its 2020 and 2021 financial statements. The reports by Armanino LLP, which signed the report for the U.S. operation, and by Prager Metis LLP, which signed the opinion for the offshore operations, were issued at the end of March 2022."
> Prager Metis and Armanino worked with FTX, but I can’t find anything showing they completed an audit.
The FTX et al. bankruptcy filing (by the post-SBF CEO) refers to the existence of audited financials for the WRS silo (which includes FTX.US) by Armanino and Dotcom silo (which includes FTX proper) by Prager Metis, with the other silos not having audited financials. This seems to be a fairly strong indication that the audits were completed.
People seem to forget that the entire point of shell structures is accounting tricks.
Sure FTX (the audited entity) really did have a piece of paper saying “magic beans company owes FTX $1bn in bitcoin” and all a GAAP audit would do is look at that paper and say “yep, this paper is worth $1bn (with maybe some repayment risk discount).” Maybe a good audit team tries to understand who really owns magic beans corp, but it’s easy to hide things like that.
FTX the audited entity could be totally fine, but then the shells are where the problem lies.
It probably didn't cover all of them: all of the announcements I can find from the time just talk about FTX US and International.
But if you're trying to decide whether to keep your money in another exchange, and they talk about how they have passed a GAAP audit "did the audit actually cover everything I care about" is still a live question.
Basically if you want to keep your money in a regulated institution, don’t use a crypto exchange. You can be your own bank or just sell the crypto and buy some funds where you know some basic facts about where your money is and who can touch it.
I can’t imagine why anyone would risk keeping their assets in binance. Do you know basic facts like which jurisdiction in the world they are even based in?
Optimistically it sounds like a 50% chance they are actually fine and 50% chance they’re on the path of FTX. Big risk with no reward other than minor convenience
Coinbase and Gemini are regulated USA exchanges. Gemini had been fined for violating regulations. (Gemini Earn was a third-party fraudulent investment product, enabled by Gemini company.
FTX was a fly-by-night international exchange like Binance.
I don't understand FTX.us . It was US regulated? Did people lose money in FTX.us exchange?
No need to speculate, there were to seperate "audits", which were unrelated from each other, and only covered parts of the enterity of FTX. And Pager Matis' selling point seems to have been a Metaverse HQ...
Likely marked to market, but it honestly doesn't matter. In a world where wash sales are effectively free from any friction whatsoever, you can set a market value of whatever you want.
I've been a crypto skeptic for all this time especially NFT's exactly because I was at the right age to understand how wash sales drove the dot-com bubble, and looking at the defi space, wash sales could explain how all of these insane valuations kept happening.
What's the value of coins if with Binance down, most certainly Bitcoin will be down too as it was propped up with fake printed USDT, which will collapse as well, and with them evaporating, every other coin will follow? If Binance falls, all crypto will vanish. And good riddance.
BTC won’t vanish but most all other ones will revert to their natural state outside of the last few years bubble (zero-ish). I’m sure BTC will still be worth some thousands. And I’m a BTC long term skeptic
People have been making the crypto tulip comparison since when bitcoin was worth less than $100. Not saying you're wrong at this point, but if you're right, you're about as right as a broken clock.
That's definitely true. What - unfortunately in some ways - is also true is that a lot of people cleaned up on both Enron and bitcoin. They did this ultimately at the expense of other people but those people too were trying to do the exact same thing.
It's effectively one group of greedy people feeding off people that are greedy too but a bit later to the musical chairs game. And so they end up without chairs, but if you start such a game you already know that somebody is going to end up without a chair, you just hope it won't be you.
True but I have been making them from the beginning.
I actually think it would be good for people to see crypto as worthless. Maybe then they would spend it instead of holding it and it could actually act as a currency.
> If you have assets in an un-audited exchange, get them out now.
This is Mexican standoff. The only "value" crypto assets have comes from exchanges that will trade them for fiat. If crypto holders stop trusting exchanges and pull all their assets that will cause the exchanges to fail and those assets will then be worth nothing. On the other side if exchanges try to earn the trust of holders by becoming "fully transparent" it will be revealed that there's not nearly enough fiat reserves to support the current valuations. (It does no good for Binance to prove they have a reserve of $18B of Tether to back the $18BN BUSD marketcap if turns out Tether is actually mostly backed by Bitcoin that only has a USD value because it can be traded for BUSD...)
True, but the first out that manage to sell them for fiat through some other way even at a substantial discount are going to be off substantially better than the last.
I assume that by "get them out" the parent meant "move your crypto from an exchange to a wallet you control". If your end goal is to be out of crypto altogether it would make far more sense to just sell while the exchanges are still open.
> If crypto holders stop trusting exchanges and pull all their assets that will cause the exchanges to fail and those assets will then be worth nothing.
maybe you havent heard but it's possible to send "crypto" (lol) directly from person to person
Sure, and it's also possible to live off the land and grow all of your own food: it's obviously possible, and people actually do it, but it doesn't scale to any reasonable degree.
5) Binance does significant money laundering for Iran and Russia, so any complete picture of their balance sheet would invite sanctions and international retribution.
For me, it's the ruthlessness of dumping all the FTT tokens they had to crash FTX to buy it (which went pear shape once they saw FTX's books) makes me think that they're probably not in a strong of a position as they say they are. We see this all the time. Exchanges saying they're strong and assets are safe until suddenly a few hours later they're not.
There are some possibilities. Binance could have just done so knowing that FTX's demise would concentrate their own market share. They also could have (sensibly) not wanted toxic assets on their books - FTX's book value was/is deeply negative so holding tokens correlated to a basically insolvent entity and/or buying them is just a bad trade that hurts their financial position.
It's ruthless but I don't think it says anything about their finances. Their play made sense whether they were strong or weak.
I agree with this. There are many reasons why Binance would say they'd buy FTX and there are just as many reasons for why they would back out of the deal. Binance reneging on the deal doesn't say anything about the state of their finances other than that they might not have been in a position to take on 32B in liabilities.
If you hold tons of something that if you sell them all at the same time the price will drop the standard thing to do is to sell them over a period of time so you get the best price you can. The way Binance did it, they knew they wouldn't get the best price.
A good example of this is Tesla stocks and how Musk is selling them. He's not just dumping out all he wants to at this super high price he is slowly doing it. And it's still affecting share prices.
That's such a funny mental image, seeing the guys with the wheelbarrow trying to make it to the bank just in time for the auditors to appear and everybody is sitting around like it's perfectly normal and trying not to breathe too hard.
I don't ever entrust any exchange with my crypto. That being said, this episode will be a far better test of Binance's solvency than any audit. The proof is in the pudding. Either they have the reserves to cover the withdrawals or they go belly up.
Any investor who believes any exchange has the assets they say it does deserves to lose their money.
It takes a special kind of ignorant blindness not to see that "reserves" are all based on fake, wash-trade inflated cryptocurrency valuation, and it's all a house of cards. Like FTX. Like all of them.
If you have assets in any* exchange, get them out now. Using regulated exchanges defeats the whole point. Fiat transaction fees are lower / nonexistent compared to CC ones so if you want to gamble on the relative value of something just stick to the stock market, and if you want to send currency on something that is regulated by a government anyways, might as well use Fiat.
The only thing regulated exchanges do is profit by losing you value via fees and then some more via taxes while carrying risks of being rugged or having "your" assets frozen. Just... why?
Exchanges provide a lot of added value, at least ones that aren't run by criminals or idiots.
Wallet keys stored on a phone or laptop, or even a hardware wallet, are generally less safe than the reserve wallets of a major exchange. I can lose the device, it can break or be stolen, etc.
Writing down recovery phrases and stashing them in the sock drawer doesn't feel very safe either.
And if something happens to me, I feel quite sure that my family will get any crypto I have in my Coinbase account, but much less sure that they'll be able to recover any non-custodial wallets.
RE: personally stored keys are less secure ...this is very subjective. You don't "hand" your wallet keys to an exchange: you don't even have them. Meaning "your" CC is a lot like "your" USD in a bank: subject to taxes, send restrictions, asset freezes, IRS audits, and a whole host of other unnecessary and inconvenient crap. Being taxed on CC gains relative to the USD is ultimate hypocrisy. It's like being taxed on swiss francs or yen you hold if the exchange rate changes... except instead of an unlimited write-off for losses like traditional forex, the cap is $3000 to form a one-way YoY tax valve.
Literally nothing about the government's stance on or (severe lack of) understanding of cryptocurrencies makes any sense other than it definitely reminds me of good ole' Reagan: "If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."
RE: if something happens to you ...that is an excellent point. You wouldn't get this without an exchange, yeah. If subjecting yourself to all of the above to reap this benefit is worth it to you, that's a favorable tradeoff to make and one you definitely should.
The large exchanges were shown to have a signal chat group to coordinate activities. Total illegal collusion in any other financial institution but hey crypto is the Wild West. Not that outlandish to think they collaborate when necessary.
They also have the potentially very dangerous BNB. If some of their assets are in that company coin to smooth the waves then they could have a crash very similar to FTT
Even though I'm crypto agnostic, I'm diversified. I have some funds in Coinbase, but I don't really want to go to the trouble of maintaining a hardware wallet.
I'm way more likely to lose a wallet or mismanage it than not. As an anecdote, I had several million dogecoin from 2014 or so as a joke, which I think amounted to several hundred thousand dollars just a few years back. I couldn't find, figure out, or be bothered with moving it to an exchange before that blew over.
As for Binance, I had funds in it too before they closed their core operations in the US, and getting it back out was an extreme hassle.
As far as the substance of your comment, you'll find that my comment history is pro-Democracy, pro-Capitalism, so I'm not sure what you're on about.
Holy cow, you had hundreds of thousands of dollars of assets and couldn’t be bothered to figure out how to cash out before they lost value? You are on a different planet of financial management than most of us.
There was so much going on during the pandemic. My early employee stock and the rest of my portfolio was booming, and I'd just made my yearly TC on GME. The dogecoin gains were smaller and kind of an afterthought.
To top it off, the hard drive with the dogecoin was back at my mom's place or in storage, and it would have taken a lot of time to go back and find it.
Since it was easy to leave the computer where it was, I lazily made the incorrect decision to go long on DOGE as a gamble and as a further means of diversification. I incorrectly thought maybe it would sink then come back even higher. I didn't have to do anything to make that choice. It was very much a wrong move and missed opportunity, but everything was making me money back then, and I was making all sorts of other bets, so this one didn't seem too unreasonable.
I should have known it was a larger macro bubble, but this was my first rodeo. I didn't experience 2008 or 2000 with my own assets, and the COVID dip was my only taste of losses. My biggest regret in all of this was not selling all of my employee stock options last summer when it was near peak. I got stuck between two trading windows and thought that the losses would end of reverse.
I'm still in a good spot, but I could have "FAT FIRE"-d, fully retired (into working on my own thing), and bought half a dozen homes - a beach house, mountain getaway, Manhattan townhome... I thought about that a lot.
I did manage to purchase a historic penthouse in Atlanta with city views though, so I'm happy with that. And I've quit working to focus 100% on my own startup.
If anything, these experiences are good lessons and just give me more drive.
I think your degree of resilience in dealing with such setbacks is something to strive for, at the same time please be more careful in the future, the price of such setbacks tends to go up as you get older and even though you managed to get through this one in relatively good shape (if not financially, then at least mentally) the next time around you may not be so lucky.
It can be condescending but that’s not the only option. There’s been a lot of upset recently and older posters who remember 2000 and 2008 are trying to spare people the pain a lot of us either experienced personally or saw friends encounter. Based on his years of posting, I’m sure Jacques is in the latter category.
A friend of mine was in a similar position. I’m he knew he had a wallet holding about $300k of dodge coin. He just didn’t know if he had the key.
Long story short: he spend a big amount of time trying to recover the wallet key and failed. I’d understand someone not wanting to try something like that. It must be pretty demoralizing.
I have dogecoin wallets worth thousands from 2014 and such when we were joke mining before it had value - it isn’t that hard to fathom if you’ve operated in this space for a decade.
Oof. The preliminary corporate outline in Appendixes B of the filing is a lot.
I guess presumably you'd want to compartmentalize risk via corporate structures in as sprawling of a business as FTX was (especially if you were aware you had terrible internal controls), but it does beg the question of what nature of business each of these entities was engaged in.
I.e. if they conducting actual business and so their existence helped firewall other FTX entities, or if they simply existed on paper for accounting fraud
FTX (in total) was an entity that operated in most countries in the world, under their regulatory regimes (if existent), across four(+?) major, different lines of business.
That's not a "one corporate entity + a few international ones" type of endeavor.
Fair enough. It’s a remote possibility for a company with literally no known legal structure and under criminal investigation in multiple jurisdictions, but sometimes unicorns fart rainbows.
Even an audited exchange like Coinbase that is trying to do everything right is still self reporting loses like $430M in quarter 1 of 2022 just by operating their business correctly.
Not your keys, not your crypto. Anyone storing their crypto on any exchange has this risk.
For many users of these exchanges their entire interest in crypto is speculation/trading, which requires them to store their crypto with an exchange so they can trade it because the costs associated with transferring to and from the exchange repeatedly would be prohibitive.
Money in general has transaction costs - even cash decays every time it changes hands. Is it all a negative sum game? It seems that in order to make that claim, you need to make some comparison between the value produced and the costs incurred. IMO, crypto is pretty scammy but there is some value (note that crypto is most popular in countries with unstable economies and corrupt governments). A crypto that’s optimized for lower transaction fees could be net positive.
Money in general are traded for productive goods and services, not other kinds of money. That's why it's not negative sum. If you had a bunch of people trading between USD and GBP amd EUR and doing nothing else, that would be negative sum and look an awful like what people do with cryptocurrency.
> If you had a bunch of people trading between USD and GBP amd EUR and doing nothing else, that would be negative sum and look an awful like what people do with cryptocurrency.
That does happen. About a decade ago I dug into FX flows. The trade in USD was eighty times trade flows.
FX is a nasty business, huge profits to be made, profits that can be multiplied by the slightest bit of undetectable (now the traders know how to cover their communication traces) fraud.
Cryptocurrency is pure scam, true. But, in my educated opinion, the international financial system is dominated at the highest levels by out and out crooks.
The state of international finance, how it works against its consumers and saps the life out of the very economic activity it fosters (economic activity at the level we have would not be possible without sophisticated financial systems) is a huge incentive for developing crypto.
I just wish that there was a better solution (even a viable solution) than crypto
Complex social and economic problems do not have simple easy answers.
The difference is that stock, at its core, represents a claim on a portion of the future profits of a business. The business is out there building widgets, supplying people with a service, extracting raw materials, whatever. Most coins are just hollow marketing gimmicks designed to move money around.
Basically all the DeFi ecosystem boils down to trading one coin for another coin, there is no productive work at the core generating value.
This is a textbook distinction, but when I look at my nasdaq and crypto candles, they all have the same 3-year profile, crypto just feels like it’s 1.5x leverage but that’s it. If stock market is all about production and long-term investment, then it shouldn’t bounce up and down with fear waves. The sibling commenter is right, just from the charts it seems at least 66% of “investors” are short-term players and no forward-looking company will (to my limited understanding) build a long-term strategy around these volumes. I mean, they will, but that only confirms the idea?
> The difference is that stock, at its core, represents a claim on a portion of the future profits of a business.
Wow, that's so real, concrete and down-to-earth :-)
> The business is out there building widgets supplying people with a service
Or perhaps not doing these things, but making performative presentations on how its groundbreaking unproven innovation is certain to bring in a lot of money in the future. Or a mix of the former and the latter.
> Most coins are just hollow marketing gimmicks designed to move money around.
One could argue that some, or many, publicly-traded companies - when one considers the listed trade value of their stock - are 10% real business and 90% hollow marketing gimmicks serving as parking space for speculators' money.
The past decade companies have sold debt to raise funds to repurchase stock to drive up stock price so senior management can meet their KPI and get a larger bonus.
This is useful activity for society because senior management deserves more money and they work really hard to earn it. /s
Stocks give you share of ownership over the cashflow that a company generates from its business. Theoretically, that is where the value of stock comes from. Crypto does not generate any cashflows (due to selling no goods or services). So crypto is not like stocks. If anything, it is more like commodities than stocks.
I don’t see one, but that’s a separate discussion. The narrow one is that every crypto-trader’s gain comes at another’s loss. Cash in and out of the system is entirely conserved across all timelines.
If they’re negative sum then so are traditional payment processors that charge transaction fees, which is not an argument I’d be prepared to make. Unless you see something fundamentally different about the nature of those fees in crypto?
It's because you can transfer money without paying fees, those fees are for convenience. You can not transfer crypto without paying fees.
Also, notably most banks will do SEPA transfers for free. There's nothing inherent in money which would make the action of moving it force giving a fraction of it to some other entity.
Indeed, the only disagreement I am aware of is whether the scam being run by multiple entities ("miners") is a significant difference to a Ponzi and so it's a new kind of scam (suggested name: "Nakamoto scheme") or the difference is aking to an LCD vs CRT TV, nothing significant and it's just a Ponzi. But the fact it is a scam is an indisputable and rather simple mathematical fact.
To quote Preston Byrne who coined the phrase Nakamoto scheme:
> The Nakamoto Scheme is an automated hybrid of a Ponzi scheme and a pyramid scheme which has, from the perspective of operating a criminal enterprise, the strengths of both and (currently) the weaknesses of neither.
Someone clearly has to pay to keep to SEPA infrastructure going, be it the banks crosssubsizing from profit on lending or taxes funding organisations in EU level.
Crypto fees are just much more straightforward. You pay a small amount to use the network and there are no strings attached, no hidden subsidy. In theory at least that is because most networks are still funded by inflationary payouts. But no one is forcing you to hold anything more than you need to pay for fees in the crypto currency at any moment in time.
Just like with most things crypto has been widely oversold and 99% of coins are basically scammy penny stocks. No one disputes this. But as someone who has moved internationally quite a bit I would LOVE for all my ETFs and bank accounts to live on an open Blockchain so I don't have to worry about migrating everything when I move to a new country. Even if I don't fully custody them, moving USDC through Ethereum or Solana is just 100x better than any international wire transfer. Stocks are basically stuck in whatever country you bought them in, I don't even want to know how difficult it would be to move my depot from one country to another. You'd have to sell everything.
>so I don't have to worry about migrating everything when I move to a new country.
Not sure what you mean. It's not significantly more difficult that it would be (and maybe easier) to be constantly transferring blockchain assets to local currencies/equities etc. ACATS makes the process pretty straightforward and handles most common financial instruments like stocks, cash, bonds, ETF's, and more. Then you're done, your entire portfolio transferred in a few days. Just choose a good brokerage firm in the first place: ACATS participation should be a prime criteria if you might move country at any point, ever.
Similarly, USDC/Ehtereum/Solana only seem superior to a wire transfer until you have to use them in a local economy. Then converting them to something compatible with the local economy isn't significantly better.
If you're imagining a future where local economies accept these things directly then I think that future is, at best, possible but mostly theoretical at this point. Crypto is not a major threat to sovereign-dictated monetary policy at the moment, and I suspect that the second it appears it might be then there will be rapid action to cut off that potential.
I don't see a way that crypto can bootstrap fast enough around such things when a government can, pretty much overnight, make every business own and retail cashier who accepts a crypto payment into a criminal if they so choose. Gray and black markets might still prosper, but it would make any vision of mainstream use, much less institutional use for things like inter-country investment portfolio transfers completely impossible.
> But the fact it is a scam is an indisputable and rather simple mathematical fact.
And:
> negative sum games and thus are scams
I don't think you know what the word "scam" means.
Merriam Webster defines it as "a fraudulent or deceptive act or operation". I don't think either Satoshi or Vitalik did anything deceptive or fraudulent.
Whether or not something is a scam is not a matter of "simple mathematical fact", but rather of intent.
Whether the operators of mining farms have mens rea is a matter for criminal courts. No one tried to sue them yet, perhaps no one will. Perhaps some aspiring DA will try. Who knows.
That doesn't change the fact they run the scam.
I wrote this up before but here it comes: if there's an empty room and a few people come, play a few rounds of a card game and then leave and the room is empty then it is obvious the sum of their money couldn't change. Some won, some lost but the sum is the same. This is called a zero sum game. If they decide to use plastic chips during the game and only use real money in the beginning and the end, nothing has changed.
However, if someone takes a cut every time the chips are being moved around then that person is guaranteed to win and the players in total are guaranteed to lose and a game where we know who wins without knowing anything about the game is quite obviously a scam.
Your only way to win is to hype up the game and sell your chips to an outsider who will now sit on an even bigger loss. Might not be realized yet but it is there.
That assumes that at the end of the game your bitcoins etc do not have a market value which does not accord with reality. For better or worse people value them like collectibles.
AMMs have solved this. The competition is amongst AMMs solving this better than they currently do. The need of custodial exchanges for trading is done. They can be just fiat onramps now as long as liquidity improves on AMMs.
I don't know any pro traders who use Binance but there might be some. Binance is popular with crypto kiddies, small time traders and they're also very strong in less developed countries that aren't served by any other major exchanges. People buying cryptocurrencies to escape high inflation or political risk. Basically a lot of newbies who aren't too aware that Binance is shady despite its size. But it's a diverse user base, they're not all active traders.
For now at least with Coinbase it is the investors funds at risk, not the customers funds. And that example shows how hard it is to run such a business profitably.
> ... with Coinbase it is the investors funds at risk, not the customers funds
Oh boy are you in for a surprise:
"In its quarterly report, Coinbase added a risk disclosure: if the company were to file for bankruptcy, the court might treat customer assets that the exchange is custodian for -- their Bitcoin, Dogecoin or whatever -- as Coinbase’s assets. And they’d be at the back of the line for repayment, forcing normal people, unaccustomed to the ins and outs of federal bankruptcy court, to claw back their money along with everybody else owed money by the exchange."
Here's the un-editorialized full text from their SEC filing:
> Moreover, because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors. This may result in customers finding our custodial services more risky and less attractive and any failure to increase our customer base, discontinuation or reduction in use of our platform and products by existing customers as a result could adversely impact our business, operating results, and financial condition.
> Further, we place great importance on safeguarding crypto assets we custody and keeping them bankruptcy remote from our general creditors, and in June 2022 we updated our Retail User Agreement to clarify the applicability of UCC Article 8 to custodied crypto asset — the same legal protection that our institutional custody and prime broker clients also rely upon. UCC Article 8 provides that financial assets held by Coinbase are not property of Coinbase and not subject to the claims of its general creditors. In light of UCC Article 8, we believe that a court would not treat custodied crypto assets as part of our general estate; however, due to the novelty of crypto assets, courts have not yet considered this type of treatment for custodied crypto assets
Everything is literally editorialized (first by your brain, then by institutions). A charitable interpretation of the parent comment is that it is not editorialized relative to the original source.
See the full text from the SEC filing: "due to the novelty of crypto assets, courts have not yet considered this type of treatment for custodied crypto assets"
Basically, there's no legal precedent. It's anyone's best guess.
Go read FTX's statement to Congress from a few months back on why crypto exchanges should not be hobbled by all those old rules about separation of functions.
There's nothing prohibiting a crypto exchange from having a separate company to hold customer's assets. In a bankruptcy, the custody company should still be solvent. That's required in Japan.[1] Customers of FTX Japan still have their assets.
I work a lot with trustees that hold third party funds, there isn't a single one of them that would ever commingle funds to the degree that these exchanges do (or even any degree at all other than to separately invoice customers for work and fees), and all of the rules around such third-party monies should be mandatory for any exchange. But as was pointed out elsewhere in this thread even that may not be enough if an exchange goes bankrupt.
Basically, because cryptocurrencies aren't considered "money", and what they are is still kind of up in the air...and because, as so many of its proponents are so proud of (despite it being extremely obviously a temporary state of affairs), cryptocurrency is not yet subject to very many laws and regulations.
You can't have the protections of "money" without the regulations of "money". As long as everything was going fine and government was still dragging its feet catching up to technology, the people who got in early got to pretend there was something special about cryptocurrency that made it possible to have their cake and eat it too.
Now, they're starting to find out why that's not the case.
The disclosure isn’t a statement of what Coinbase would want to happen, but rather what a bankruptcy court might do. Bankruptcy law is very pro-debtor. An entity in bankruptcy court is like a Hoover, aggressively sucking any nearby assets into the bankruptcy estate.
This isn’t true in the case of bankruptcy. Note that in early 2022, Coinbase updated it’s disclosures to include that customer coins could be used as collateral to pay debts. That would leave customers as unsecured creditors (ie, stuck at the back of the bankruptcy line).
Essentially that they are most likely dipping in to support either their operations or other projects from the customer funds. That's not proof, but I would not at all be surprised if there isn't a single one of them that is clean.
I mean, being the custodian of funds actually costs money, one should wonder about the motives of the exchanges offering custody for the funds.
There are many banks in europe that will not open accounts for people who just moged there, unless they bring along plenty of money.
This simply means that having your coins on an exchange is the same a forfeiting them unless otherwise proven.
But the crypto exchanges double down on that, they speculate like the banks do, but with zero risk managment and oversight, the biggest accounting firms do not want to offer their services to them.
They have also leveled up their exit strategies, instead of the plain old run away, they run the business while they can extract money and then later they seek legal cover under the umbrella of bankruptcy laws.
> how did these exchanges get so large before anyone thought of audits?
Who said no one thought of this? There was simply no one to enforce this.
Look at Coinbase. They made a point of being “regulated in the US”. They’re audited. They’re legit (most likely. I’m not the auditor). They’re complying with disclosure laws as a publicly traded company.
Look at Patio11, he’s been publicly making claims about tether and the crypto ecosystem for years. If it all blows up and his speculation /research was right, then who is to blame? We’ll have years of boy crying wolf and we thought it was a sheep.
> If they’ve “debunked” the 27 year figure, then what is the correct average lifespan of fiat currencies?
The question is kind of ill-formed in the first place. Take the current US dollar. How long has it been around? Per Wikipedia, it was established by Congress in 1792, which gives it a sedate 230 years of existence. But given that the original analysis is by a gold bug, I suspect the intent is to limit it only to the 51 years that have passed since the end of the gold standard in 1971.
If the goal of the question is to work out how long a fiat currency not backed by gold will last before it's hyperinflated into nothingness, then it stands to reason that the metric which best reaches that conclusion would be in fact the earlier date: the Nixon Shock wasn't an episode of hyperinflation (inflation reached a measly 10-20% annualized). Events like the creation of the euro are even more starkly not relevant to answering that question.
There's also severe methodological issues with completely omitting currencies that haven't failed yet, which ought to be patently obvious. There's another severe bias in terms of the inclusion of currencies on the list, since there's going to be several currencies for which is there is likely insufficient data to establish the lifespan correctly, because records tend not to preserve very well after several centuries.
To attempt to answer your question, I don't have any hard data in front of me. But I would be shocked if the mean lifespan of a currency were substantially less than a century--there are several currencies that lasted several centuries during the Medieval period, such as the ducat lasting ~730 years.
I do broadly agree, the "27 years" figure is a rhetorical number that doesn't mean anything in itself. That said...
> If the goal of the question is to work out how long a fiat currency not backed by gold will last before it's hyperinflated into nothingness
That isn't completely fair. The ducat lasted ~730 years and preserved a reasonably consistent amount of value all through that time. Someone holding a dollar in 1971 has effectively lost 95% the value that they expected it to have vs gold. Even as demand for gold has presumably plummeted now that it is no longer officially involved int he monetary system.
Just because they are destroying the value of the currency on purpose doesn't change the fact that the value will be destroyed. It doesn't need to be an unexpected event like a hyperinflation - normal inflation is also enough.
> The ducat lasted ~730 years and preserved a reasonably consistent amount of value all through that time.
Not really. Inflation long predates modern times, there's a reason that the terminology is called "debasement" (adding base metal to gold coins). I don't have hard numbers on the value of the ducat (because that pretty much requires trawling historian journals I don't have access to), but judging from other coins that pop up, the annual inflation rate would have averaged perhaps 0.5% for the Medieval and Early Modern.
Why should a steady 2-5% inflation rate in modern times be considered destructive to value, but not the steady 0.2-1% of earlier periods?
> Why should a steady 2-5% inflation rate in modern times be considered destructive to value, but not the steady 0.2-1% of earlier periods?
Because they are different by an order of magnitude. Over a 70 year lifetime, at 0.2% inflation a coin is worth 90% of its value at the start of the life. At 2%, it is worth a hair less than 25% (at 5%, it would be effectively worthless because the coin has lost 97% of its initial value). That is quite a different outcome - one of those rates I could save using coins and not do too terribly in real terms.
Did the Reichsmark and Rentenmark fail when they were replaced 10:1 for Deutschmarks, losing 90% of their face value?
Yes!
You are cherry picking by choosing the Euro. The point is that valuation loss to currency printing is currency failure. The vast majority of currency “replacements” are just abrupt failures, and generally coincide with a country being overthrown by a new authority.
> Did the Reichsmark and Rentenmark fail when they were replaced 10:1 for Deutschmarks
Straw man. Nobody argued fiat never fails.
> vast majority of currency “replacements” are just abrupt failure
What is your source? You posted a statistic. A comment found it was based on B.S. You disagreed. I clarified the debunking argument. Now you’re throwing out straw men and a new unsourced claim.
Not a "straw man". It's one step back in history from YOUR example of the Deutsche Mark!
Again, the broader point is that measuring a "failure" as a total collapse vs. a replacement with a possible devaluation is the strawman.
Abrupt "failures" (or "replacements"... choose your euphemism) are noticed, but modern fiat currencies are constantly failing. It is easy to measure. The metric is currency debasement, what you would call "inflation" and what I would call "state sanctioned counterfeiting".
Prices also fell by 90% and everyone kept their savings with the Reichsmark, so I'd say no. Also, the Reichsmark collapsed because of the fall of Nazi Germany, it had nothing to do with the currency itself.
The Rentenmark was legitimately an absolute debacle, one of the worst of all time right up there with the Zimbabwean dollar
Bitcoin and other crypto is definitely not fiat currency, because virtually nobody will sell me a pack of cigarettes or a croissant for crypto currency.
Is there a central bank that can print or sell Bitcoin to stabilize its price? Is there a central bank that can set rates for BTC credits and deposits?
Well for starters they have over a thousand employees, plus office leases, plus I'm sure cloud provider fees, marketing, and more. There are expenses for sure.
It's definitely strange. Binance did $40 billion in volume in the last 24 hours. Even if their effective fee is only 1/100 of a percent that's $4 million. If we assume they do half that volume every day on average that's 730 million in revenue per year. Surely costs can't be that high?
> Binance did $40 billion in volume in the last 24 hours.
It didn't
> Even if their effective fee is only 1/100 of a percent that's $4 million.
It's not.
The reason? They "traded" fictitious currencies whose "value" is pure speculation and nonsense. Their fees are also denominated in these fictitious currencies.
However, neither the offices they rent nor the people they employ have any interest in these, because rent and salaries are paid in something that actually has value: the dollar.
Now, where does the actual money come from is a good question, but I'm too lazy to read their SEC filing.
I have calculated salary costs alone to be 30m a month at least. Could also be up to 80m, though, I have used the most conservative calculation I could reasonably come up with.
Then comes office infrastructure, if any and cloud assets.
Everything you hold a position in translates into risk on the books. If some of those positions (or even a majority of them) ends up losing you will need to make up the difference.
On top of that KYC and other operational costs really add up, and without another revenue stream than the transactions themselves it may simply not be enough of a slice to be viable.
Coinbase is like an empty casino with lots of employees, a solid vault, and no one at the table games. Binance is like a packed casino with few employees and about as transparent as mud.
It's really weird, because "typical" exchanges (NYSE, NASDAQ, CME, etc) typically charge like, what, a few basis points to trade? Coinbase is charging .60%, an order of magnitude of higher fees, and yet they're still somehow losing money?
Hiring a ton of silicon valley employees to make it really inefficient.
Seriously, though, the NASDAQ matching engine runs on a 1U server, and I doubt coinbase needs anywhere near that amount of processing power. Clouds just make it really hard to run a fair matching engine.
Mazars is likely wondering if they are going to be the next Arthur Andersen before this is all over. Good luck finding another firm when one of the top firms in the world drops you like a hot potato.
They haven't done anything wrong AFAIK; they didn't sign off on an audit, and withdrew, which is the reality of many smaller accounting practices taking on unfamiliar clients.
Arthur Anderson knowingly fudged the numbers at Enron, and provided both accounting and consulting services, which was a big conflict of interest. The consulting arm came up with new type of revenue opportunities (energy contracts), and the accounting arm cooked the books to show that these were profitable.
It’s actually so nuts. People rarely get into the details of how crazy accounting was in Enron. They made an agreement to build a power plant, then booked 50 years of profit from operating it before they broke ground.
... and shortly after the deal was signed (and the projected profit added to the books), the contract was swapped out / "sold" to a subsidiary mostly owned by Enron, and selling this propped up the books even more.
The associated debt was in the subsidiary, and thus didn't show up on the balance sheet.
Mazars has already been cautioned - together with BDO - regarding their oversight on crypto, the regulators have essentially told them to improve their quality before they grow these branches of their corporation further. That puts them on petty thin ice.
Arthur Andersen messed up big time, not in the least because their Chinese walls failed in every way imaginable but the parallel is pretty close: all of these companies are chasing new markets with abandon when in fact they should out of caution rather than regulatory pressure slow down and do their jobs properly because the financial world depends to a very large extent on that.
This feels a lot like how a credit crunch happens with regular money.
"Coins you own keys to = Coins in some online wallet = coins on exchanges = coins you lent out for interest" is the assumption everyone makes. They're all different types of assets but normal market conditions create the illusion they're all one and the same. There's 1 <-> 1 exchange possible, you can easily move coins from an exchange to your wallet, so they must be the same right? No.
When shit hits the fan, all those links break down and then there's no convertibility. Only what you really own is what you own.
With normal money, atleast there's Fed so they can actually do something about it and stop the links from breaking down completely, here there's no backstop.
And if the funds are held in a regular account the Fed or other local institution like that will likely make you whole up to a point (usually $100K or thereabouts). As soon as you go unregulated that is no longer the case.
Binance is China-owned so there's no problems, all criminal allegations are false, company is in great shape, and customer's assets are safe. What about Coinbase?
That may be so, but in normal communications, such as speech it is tone of voice and possibly non-verbal hints that will indicate sarcasm. Online you don't have that and the 'collateral damage' can result in a lot of wasted bits from people reacting to the words rather than to the joke and this in turn can drown out the rest of the discussion.
I understand why you might want to add a sarcasm indicator to texts including sarcasm. I'm not arguing against that point. I'm trying to show the other side of the coin: why some other people would not want to add those sarcasm indicators.
It happens :) The first few years on HN I was super bad at this, but after a while it becomes a bit easier and the posters history is usually a good clue. That said I still get it wrong plenty of times, especially in writing.
Binance and other crypto exchanges offer leveraged trading to all members, and it's fair to say [1] that there's a huge uptake of those services due to their open-door nature, crypto's volatility, and the illusion of fast money. And human psychology, of course.
This means that at any given time, a dominant exchange (i.e. Binance) can run an order books VS leverage liquidations system, where it can be continually (and exclusively) evaluating the cost/profit of using their internal market makers to shift the price of any given asset counter to the leverage trend. Which they, as the exchange holding ALL the data, have full insight into.
When we're talking about an asset that's near-exclusively controlled by a particular exchange - e.g. FTT, BNB, ... - this becomes an even simpler manipulation for the exchange.
This gives them options.
They can allow a "natural" price trend to play out, OR, they can buy out the order books in the opposite direction, and liquidate/take all the money of every leverage trader who tried to leap onboard the trend. The harder the market movement, the more gamblers try to leap onboard, giving the exchange proportional fuel to do as they please.
I'm not suggesting you're wrong, but would you care to clarify how exactly binance being "in dire straits" (in the sense of not being able to honor withdrawals, I presume you mean) would affect the value of BNB?
They could defend the price pretty easily by rigging the price on their exchange by printing BUSD to buy BNB.
I will be shocked if we don't find proof they've done this in the past.
You can do this w/o screwing customers.
Let's assume that some percentage of BUSD is legit (likely a lot of it is).
This means BUSD has some value. Let's say everytime someone converts real money to BUSD - Binance spends 100% of treasuries and then an additional 10% to buy BNB.
They can keep that 10% in their own wallet - and if the value of BNB someone goes to $0 with them playing this game - they can just wipe that account out. They still have all the treasuries to pay their real customers.
However, if you're doing fraud - you're probably doing a lot more of it than this... So you probably won't be able to pay out your customers, because you probably blew all their money on coke and hookers like FTX and every other crypto company so far.
Actual BUSD is issued on Ethereum by Paxos, which is a separate US company that is licensed and regulated by NYDFS. I think it’s unlikely that any of this issuance is fraudulent. Binance then maintains a “pegged BUSD” token on the BNB chain (and other chains.) This is supposed to be backed “1 to 1” by Real-BUSD held in a Binance wallet on chain. They could break this peg at any instant they chose, but it would be visible. I did the math a few days ago over here [1] and it checked out. I’m posting this not to say the situation isn’t risky, just that it seems risky in a highly-transparent way - ie, I can’t see how they would manufacture BUSD without someone noticing. Maybe there’s a loophole I don’t see.
Yes, my poetic license path is very heavy withdrawals -> bank run -> dire straits (money for nothing pun).
$60B in assets, $8B in withdrawals. Even if all the assets are correctly valued, I don't anyone would envy their position. But given their own coin in holding in there, maybe they are devoting some money to defend it, or maybe they are actually in decent shape and can handle this quasi bank run.
More succinctly, if they were really toast, then $BNB would be cratering. Given it's holding in there, it seems they are OK (at this very instant in time).
Collapses often happen very gradually (in a time span relative the the majority proportion of the collapse) and then all at once.
As such, its failure to collapse as the crisis continues is not strong evidence that it’s not toast. Consider the examples of any system subject to cascading failures. But neither is there sufficient evidence to determine if it’s in the early stages of a death spiral.
What seems clear to me is that it’s unlikely to improve in value in the very short term, and might indeed collapse, so it could be prudent to transfer assets out while there’s still liquidity to do so especially in light of recent collapses. Of course this has the downside of accelerating or even making a collapse a self-fulfilling prophesy: that’s inherent to the nature of any asset where user confidence is a tent pole of stability.
It is also why traditional finance has evolved mechanisms to have lenders of last resort so that there is no death-spiraling perverse incentive to get your money out early in those situations. But that sort of back stop takes truly massive resources that need to dwarf those of the potentially failing organizations, which is why you see nation-states filling the role. It may take a nation issuing debt against the guarantee assets of a $trillion+ GDP (and really the taxation ability that comes with, though even that oversimplifies things…) in order to back stop and perform that role for organizations on the scale of many $Billions.
Well it has lost about one quarter of it's value VS Bitcoin in the past 3 weeks. Whether or not that fits the definition of cratering is up to the individual.
Looks like someone external does an audit(1), and then the auditor creates a Merkle tree which you can then validate (by a Markle leaf which you can access from your account).
Specifically for Crypto.com the auditors:
> obtained and inspected the scripts used by management to extract the Customer Liability Report from the database. Based on management’s explanation of the various parameters we ensured that the logic and the parameters are designed to extract a complete and accurate listing of client liability balances of the In-Scope Assets as at 00:00:00 UTC on 7 December 2022 while excluding any company internal accounts. It was found that the script was queried against the latest production data at the time of the data extract, which showed latest updated
time as of 23:59:59 UTC on 6 December 2022. We observed management access the
database and execute the scripts to extract the relevant data from the database. We
subsequently obtained the data produced from management (i.e. the Customer Liability
Report) and performed a row count and sum check on the data set. We did not identify any
discrepancies based on the row count and sum check performed.
> Using the Mazars’ Silver Sixpence Merkle Tree Generating tool, we aggregated the client data obtained from management in this procedure and computed the Merkle Root Hash. The Hash for the Merkle Root based on the information supplied in procedure 6 is e535cf418ab603cc4b338069a814037d53 c50bf37dc5776631f3d9c3110e08af
So you do still have to trust the audit, and assume no foul-play, because I think this just shows that your balance was included in the audit (as a liability). I believe this just stops Binance from being able to hide customer liabilities from Mazars.
* (1) In Binance's case this wasn't actually an audit, and Mazars did this piece of work with Binance assuming good-faith according to processes mutually agreed between Mazars and Binance. As per the Mazars disclaimer, "This AUP engagement is not an assurance (financial audit) engagement. Accordingly, we do not express an opinion or an assurance conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported". I would note that IMO the Binance page does use the word "Auditor" a lot on the PoR page which might be slightly misleading (they are an auditor, but they aren't financially auditing Binance...?).
In the interest of championing transparency, we would like to share some of the shortcomings in the Proof of Reserves process that we’ve identified.
A Proof of Reserves involves proving control over on-chain funds at the point in time of the audit, but cannot prove exclusive possession of private keys that may have theoretically been duplicated by an attacker.
The procedure cannot identify any hidden encumbrances or prove that funds had not been borrowed for purposes of passing the audit. Similarly, keys may have been lost or funds stolen since the latest audit.
The auditor must be competent and independent to minimize the risk of duplicity on the part of the auditee, or collusion amongst the parties.
The seem to be banks and exchanges. NYSE and Nasdaq are exchanges but don't hold customer funds they execute trades and that is it. These crypto exchanges are more like banks...and that is the problem. Until banks allow crypto accounts and connection to exchanges this will keep happening.
We will end up using good old banks to hold those assets… at least the regulations make them solvent.
We need to read history and see what happened when the banks weren’t regulated enough and we are letting the crypto zoo run free and bankrupt many people.
Such a bliss the “we don’t need traditional ecosystem to thrive”.
I know how this is going to end, we will replicate the finance ecosystem into the cryptosystem.
I still remember the “don’t be evil” slogan in google, let’s give random people the power to store all our crypto investment and let’s see what happens…
AI hasn’t threatened anything yet (in a not good way), so it hasn’t met regulation.
Crypto threatened monetary systems, finance, VC, banks… and because of that attracted both all the money and all the ammunition from this recent QE hyper bubble. Now as it pops it’s very easy to say “look see it sucks,” but this shallow analysis, will it hold outside of the current recession?
AI makes lots of splashy headlines but where’s the actual value outside upgrading existing big tech? Sure search and recommendations but what else?
The artistic stuff gets tons of attention but what’s the market cap there - even Hollywood is small compared to finance.
And as it does encroach on bigger industries it’ll face new problems: resistance from humans (copyright/regulation, cultural) and having to contend that by definition it produces “average” works.
Like how remixed music became hugely popular and died off, AI produces remixed content, but humans want fresh. Look at music, film, fashion, anything really creative that AI looks like it’s edging in on - all those industries are driven by fresh content, new perspective. So I see it accelerating things but not revolutionizing, and as it’s very nature draws value from the masses and gives it to the few, it’ll eventually hit hard resistance from voters, unions.
Meanwhile crypto has a ton of problems - UX, scaling, regulation - but it also has good fundamentals in that it stands to distribute power towards the masses and they drive adoption. And if there’s any trend in tech that’s been constant since the 70s it’s that the companies that can deliver value to the largest amount of people succeed.
Am I super confident this is how it plays out? No, this is just a spitball. AI could solve the creativity issues, tech companies can make it seem consumer friendly through tons of persuasion, it may keep scaling well, and big tech can lobby like hell. Likewise crypto can’t outspend finance, and the bubbles and scammers have soured many.
If you look at actual value both now and in the near future, AI is a lot of hot air, people love to share these new images but wheres the revolution in industry? Being both average and a theft at once, combined with being being easy to legislate via copyright is a bad combo.
Decentralized anything only works if people put in the legwork.
Regular people won't ever manage their own keys and if they will, a huge percentage of them will lose them in some way, thereby losing lifelong savings and such.
Which is exactly what's happening with unregulated crypto right now, people are using centralized exchanges and getting scammed.
Why doesn't Binance flex and encourage a complete withdrawal by say Jan 1? Wouldn't that kind of power move boost its reputation above all competitors?
Chances are they'll be dead if enough people act on that. So they're doing the opposite: reassuring people that everything is fine. If there is one common element that precedes every bank run and run on crypto exchanges and such then it is the 'everything is fine' phase just prior to the implosion.
1. For a bank run on an actual bank, it is known that a bank doesn't keep all your assets on hand - they are loaned out, which is (largely) what allows you to earn interest. So it is known that if everyone tries to withdraw at the same time that there won't be enough money.
2. For an exchange/brokerage, your money/assets are explicitly NOT supposed to be lent out without your permission. So, in theory, if everyone asked for their assets all at once, the assets should be there.
Re 2: this is not true if you're doing margin or futures trading, which was FTX's main business (and may be Binance's). This type of business is what characterizes an "exchange" (as opposed to a non-margin brokerage or a custodial bank).
Hence the "without your permission" caveat. Point being, when you lend your assets to brokerage, it's explicit, unlike a fractional reserve bank, where deposits are inherently lent out (and no need to comment that fractional reserve banking doesn't "really" work this way, I get it, but deposits are still part of the capitalization of the bank).
To be fair, it would be better if you explicitly lent money via certificate of deposits to the banks because it means their job is much less risky. The fractional reserve banking model isn't really something to imitate, it is a rather ugly hack that we cannot do without when people don't get enough CDs.
Perpetual futures don't require any margin. All it requires is matching buy side and sell side market participants and transferring money between their accounts as the underlying changes in value. The exchanges don't actually hold any underlying with perps, so there's no need to borrow money.
How does a perpetual future actually work?? What happens if 5 people buy the "sell" side and 1 person buys the "buy"? There's no way to redeem to the underlying, and I don't think the 1 person pays out 5x the price movement to the other side.
An exchange can hedge vs excess buy orders by buying the underlying, but how do they hedge vs excess sells?
I've been trying to figure out how to short BNB, and perps feel pretty much as risky as trying to do it on binance itself.
Each trade is bilateral. Futures, both regular and these "perpetual swaps" are zero-sum. A person buying is another person selling and vice versa. The exchange does not need to hedge the underlying because the exchange/clearing house is a neutral party in the transaction as long as the individual traders are solvent. What it is exposed to is traders blowing up and not being to cover their debts.
In case of regular futures, price discovery is aided by the fact that the futures eventually settle to either the underlying or its cash value at a specific point. In perpetual futures, price discovery is aided by "funding fees," which are periodic cash transfers from the side that is contributing to the price discrepancy between the future and the spot to the opposite side. E.g., if perp is below the spot, the short holders will periodically be charged the funding fee, which will go to the long holders, to encourage the shorts to buy/get the price closer to spot, etc.
Counterparty risk of exchanges blowing up is exactly why tether doesn’t have a gigantic short volume outstanding. Shorting stablecoins or coins that represent profit share of exchanges like bnb is incredibly risky and that’s largely on purpose, the ecosystem doesn’t want people shorting it.
If there’s a single case of an exchange using a customer’s assets to make bets isn’t that a fraud charge? Or with the unregulated nature of crypto is it not that explicit?
Dipping into customers funds for operating expenses or other uses (loans to associated parties, investment, leveraging) is a big no for an exchange, obviously, whether or not it is fraud is ultimately for a judge to determine but it sure looks like that to me.
The lure of those balances is invariably too great to resist.
Regulated exchanges are obviously a different branch entirely, but the rest of them have serious problems keeping their hands off the customer funds. And as was pointed out to me upthread even the regulated exchanges may not have enough of a wall between the crypto they hold for customers and their operating funds to guarantee that those customer funds are going to be there if the company fails.
Time and again we find that exchanges have been dipping in and using money that wasn't theirs in ways that would never fly in a regulated environment.
The problem is that these brokerages do work like banks work but pretend that they are holding all of the reserves on the books.
They are leveraging and borrowing from the customer funds with abandon, just like a bank but without the associated regulatory oversight and rulebooks.
In the runup to the Lehman Brothers bankruptcy, the CFO Erin Callan would come on CNBC week in and week out to talk about their "fortress balance sheet" and it would always pump the stock a little bit. Was absolutely infuriating to watch, but you can't get too mad at the people doing it, regardless of how bad things get their incentives are 100% aligned with projecting confidence and praying they can hold on long enough for the market to turn back up.
This is true, but there is some availability bias. There are presumably cases where "everything is fine" turns out to be pretty accurate (at least for a while), but we don't keep track of those.
Literally nobody cares about saved comments. Not even the person saving the comment.
You will have to turn this into a bet with cash on the line if you actually mean it and I think bets are stupid so how about you just stop writing comments like that?
I think it's a performative figure of speech, as if "i disagree with your comment and i think i will end up being right". Not meant to be taken for its literal content
Any firm that survive the current ?recession? will have significantly more chance of surviving and passing the shivers. Maybe the next 6 months or so is critical for Binance or any other central wallet/exchange since people are on the edge.
Is it the same FT that wrote about poor Sam Bankman-Fried that would not be able to continue his altruism because of some errors?
Keeping stuff at exchanges is a bad idea if you're not actively trading it and accept the risk. I got burned two times (cryptopia and ftx). I still think Binance is safe in terms of assets. People bring up that big part of the assets is in BUSD and BNB coins. But BUSD is issued by another company - Paxos and is fully collateralized.
BNB could be somewhat a problem if it crashed, because it can be used as collateral in futures trading. That could cause liquidations and more selling, but it wouldn't make Binance less solvent in terms of assets/liabilities.
Both Binance and Coinbase have their "wallet" apps where u can get keys for your coins. They provide a slick interface to use them as well. However in this case, you are sharing your keys with the company which means:
1. they can pull your coins out anytime.
2. They can show your coins on their balance sheet which allows them to print more of their own coins (because they are backed by deposits).
That's a good point. The exchange's remaining liabilities outside user deposits are still an unknown. (Or at least can't be verified in a trustless manner.)
It does prove that the exchange is in possession of "liquid" assets matching user deposits, which I don't think is worthless, especially if the userbase is large.
I agree that it's far from a comprehensive proof though. Perhaps exchanges need to stick to the bigger auditors for now.
Providing a proof of reserves is about putting user/investor minds at ease. If you're not willing to go all the way, why bother doing it at all?
Though I guess post FTX, all exchanges are scrambling to avoid losing a large chunk of their userbase. Claiming to have a proof of reserves, even if it was done in a half-assed and non transparent way, is probably good enough for the non-scrutinous user.
Exactly. Exchanges are important to exist. The problem is that some crypto exchanges became ordinary but unregulated banks and they sell "printed" crypto asset giving illusion the user owns crypto on blockchain.
Anything they hold a position in creates risk, the typical exchange business model is that they are fast enough and good enough that they can operate out of the excess through various arbitrage options but with extremely volatile assets the bottom can drop out pretty quickly and once you start borrowing and leveraging it can happen a lot faster still.
Essentially they are operating as banks sans regulatory oversight. It's a recipe for disaster.
That outlook has severe limitations though. Specifically that self-custody has very high barriers to actually using those coins without having them pass through some more centralized system at some point. There’s no cash equivalent (as yet) that is as frictionless as actual cash.
Maybe the next gen of tech tech that grows from these ashes will address that problem more directly, and get more traction than prior attempts by users learning from and demanding better than what they are getting now.
Well, at least we can minimize the period when the keys are not ours. If we keep the coins only for a few days on the exchange, it is unlikely that the exchange falters just during that time. But if we keep it for years, it is likely we will lose it eventually.
Interesting how the players change but the script is exactly the same and yet, people keep falling for it. I really don't get it.
I once knew some people that were up to their necks in an MLM/pyramid scheme, it was like a cult, no matter how many examples you gave them of people ending up losing their shirts they would buy more of the crap and stuff it in every nook and cranny of their house being sure that they were the ones to cash out this time. Only they weren't.
If you have any money at all at one of those crypto companies get it out now, don't wait to see if this time it will be different because it won't be.
> the script is exactly the same and yet, people keep falling for it. I really don't get it.
For every voice attempting to warn others, there are 10 others shouting them down with claims of FUD/jealousy/fiat shill. Just visit the subreddits of any of the dead exchanges/rugpull coins.
Was it last week when there was an interview with several "investors", and pretty much all of them admitted they knew they were speculating in a highly volatile and unregulated market before they lost all their savings in FTX' crash?
They knew the risks, they tried anyway, some really needed that money.
It is greed for sure. But it is also the lack of legit opportunities to invest, unless one is an accredited investor. I found a handful of places I wanted to invest, but I can't, because I am not an accredited investor. I am left with stock market and crypto.
It is super funny (sad?) that I can go to Vegas and blow up my life savings in a matter of hours. There are no rules to save me from that. But there are rules conveniently banning non-accredited investors from so many legit investment opportunities. What % of the population are accredited investors? I bet it is not even 10%
At this point, there doesn't seem to be any difference between Vegas and Crypto...
I used to advocate for loosening accredited investor standards, and was involved in a 2014 effort that did so. Then I see this. Where public equities are put on the same pedestal as crypto (and implicitly, private equity), while the universe of commodities, fixed income, credit, real estate and their myriads of derivatives are ignored. Like, I dabble in angel investments. But they’re as risky as crypto, and require thousands of dollars of legal diligence per investment, even to do irresponsibly.
We have a gambling problem in our markets that’s been sold to everyday Americans under the guise of democratising finance. We don’t need to block people from being irresponsible. But there should be a low cap, in line with a responsible fraction of one’s wealth that could be burned in a casino, and strict exemptions guarded with exams, not a wealth test. Particularly for the socially useless forms, such as slot machines and crypto futures.
> At this point, there doesn't seem to be any difference between Vegas and Crypto...
I'm not sure this is fair to Vegas. Sure the odds are against you but if you somehow win they'll cash your chips out.
I'm also not sure about the lack of investment opportunities. Returns in the public market and real estate have both been quite decent. In my adult life I've bought index funds and a small, crappy house and they're both worth more than what I bought them for.
I appreciate the desire to get involved with early stage companies but I'm not sure how many really want to put in the effort to bring in someone who doesn't have enough money to be an accredited investor. That accreditation bar isn't very high, anyone under it doesn't have much capital by definition.
Per https://www.investopedia.com/terms/a/accreditedinvestor.asp#... the requirements to be an accredited investor are well within reach of quite a few software developers. Apparently I qualify despite being in the Midwest where salaries are lower than the coast and I'm not a particularly great developer.
Based on these requirements I would guess that 10% of the population could certainly qualify given that a quick Google search says that almost 9% of the population are millionaires.
This is a good insight -- not just for non-accredited, but for everyone. The persistent low-interest era meant lack of investment opportunities for a decade which explains much of the crypto boom and many other phenomena.
> The persistent low-interest era meant lack of investment opportunities
Is that true?
Just putting your money on an index fund like S&P would've yielded you an average 14.5% per year in the last decade or an almost 400 % return in a decade.
Stock market more than doubled in the last 5 years and it highly outperformed crypto markets.
There has been no shortage of investment opportunities, but you people sound simply...looking for highly volatile quick gains.
Paradoxically, the booming of S&P was due to the same: a lot of money lying around, lacking a sound growth opportunity, flowing into stocks and real estate.
Generally, for people who are not accredited investors, the best investment is human capital -- your own education -- so that you can increase your lifetime wage income.
I bet if they were re-interviewed the risks they believed were crypto going to zero not the entire exchange folding with crypto essentially holding up for other exchanges or your own wallet.
Everyone knows it's a scam, they are all just betting they won't be the last sucker out the door. The people you see hyping this stuff are all, save for a clueless minority of largely actual children, doing so hoping to bring in a few more rubes to drive the price up and exit. Sometimes (always if you aren't on the inside to know when the rug is going to be pulled) you are the rube and you try to recoop your losses. MLM works the same way "If I only could get a few more people to sign up under me, then I'd be able to get some of my money back."
In magic/mentalism I think this technique is called "instant stooge"[0], basically play off the agreeable nature of people to get them to shill for you once, at that point they are trapped and you can escalate the ask. Come to think of it cults work the same way, after you made a fool out of yourself it's easier to double down rather than see yourself as a fool.
In short, most people aren't victims but instead aspiring coconspirators who didn't make the cut.
I think "cult" is the exact dynamic at play here. As much as I love the internet, it has enabled distributed cults on a level rarely seen before. Not only does it support traditional cults with central leaders and official dogmas (which I think includes most MLMs), but they've allowed for a sort of emergent, leaderless cult based on collective creation of the memes that drive it. E.g., QAnon and the cryptocurrency bubble.
And cults can be very persistent, even in the face of spectacular failure! The Great Disappointment predates the US Civil War, but it spawned at least one group that is still going today: https://en.wikipedia.org/wiki/Great_Disappointment
"I invested my families money or corporate funds in a lower yielding account resulting in me being poor or having gotten fired from my pension management advisory position years ago".
Chase that yield, or get replaced by someone who will.
bc some "schemes" do work, like that friend or relative who got in early on a hot stock. any investment, including those granted the veil of legitimacy, can collapse at any time just as they can continue to skyrocket nonsensically. herd behaviour
Its very simple, bad money always pushes out good money.
I truly honestly believe Coinbase is reputable. No sarc I personally believe in that company and I'm trying to be complimentary, although I have no personal affiliation other than having been an active historical customer. Anyway, they are/were/IIRC offering a loan product as an investment paying something like 5% APR (back when inflation was running about 10% LOL)
The problem is FTX was/IIRC offering a similar loan product as an investment paying something like 8%. Pyramid schemes always advertise larger numbers than the market can honestly support, its not like that have to actually earn the money LOL.
So you end up with rando speculator-investors tossing money at FTX, who wants to flush 3% down the drain by signing on with the "wrong" website?
Thus either Coinbase has to go out of business, get acquired by FTX, or hope FTX crashes and burns before the first two happen. Apparently the last option happened LOL, bye FTX.
The FTX business model was to get real big real fast and pay politicians for regulation to put their competitors out of business. Can't lose if you're the biggest and its illegal to compete with you. Ran out of money too quickly, oh well.
This is how markets work. The winners are not the "best" in some vague sense of goodness, they're the ones who took on the most risk possible without getting caught, and the more perfect the market and easier it is to flood capital in a different direction, the worse the effect gets.
The biggest dog on the block is always the first to keel over because they ran the most risks to get to be that biggest dog on the block.
This isn't a unique to finance situation, this happens in everything from automotive to mining to fro-yo fad restaurants.
> MLM/pyramid scheme, it was like a cult, no matter how many examples you gave them of people ending up losing their shirts they would buy more of the crap
Let me introduce you to my little friend, the biggest real estate hyperinflation in history. It's double plus ungood badthink to even hint in polite company that once the boomers are done, prices are going to implode to a level the latter generations can actually afford, which isn't much...
Another financial thing to look at, melt ups. Some markets that implode don't melt "down" then melt "up" as the ever shrinking number of people supporting the price disappear, upward pressure on prices actually increase as only the true believers are left.
FTX was also audited by a top firm, Armanino!Changed nothing...
In the article says:
Following the collapse of FTX, Paul MacIntosh, EY’s US financial services crypto co-leader, said on LinkedIn that proof of reserves reports do not assess companies’ internal controls, “which ultimately was the downfall of FTX”.
This is misleading. FTX, either referring to the specific the company or the whole network of companies, did not. What was referred to as the “WRS Silo” in the bankruptcy proceedings, which includes FTX.US, did.
The “Dotcom Silo”, which includes FTX-the-specific-company, had an audit, too, but by Prager Metis not Armanino, which, in contrast to Armanino’s known status, the post-SBF CEO handling the FTX bankruptcy describes in the bankruptcy papers as a firm with which I am not familiar and whose website indicates that they are the “first-ever CPA firm to officially open its Metaverse headquarters in the metaverse platform Decentraland.”
The other silos, including the Alameda Silo (which naturally includes Alameda Research) had no audited financials.
In comparison to the Big 4, this organization is clearly insignificant.
That's why I should have gone with "one of the top 25" firms.
Nonetheless, "a top firm" is still applicable here, not "the top firm".
Their own website touts their spot in the top 25, and Accounting Today's 2021 revenue ranking further confirms this by placing them at number 21. While Mazars are 26th on the same list.
(https://www.accountingtoday.com/the-2021-top-100-firms-data)
Evidently, this firm have audited billions and supposedly assured investors!
But also I am more concerned about the lost savings of innocent people!
Like Ontario Teachers', Canadian pension funds!
> FTX was also audited by a top firm, Armanino!Changed nothing...
I've never heard of this Armanino company. They're not even top 10 worldwide, they claim to be top 25 in the US, they don't have a Wikipedia page, even.
Plus, was that audit even finished and an opinion given? Anything else is worthless.
If you have billions in reserves and operate all over the world, you might not go with Big 4, but you also aren't going to take your business to a regional branch office in South Africa.
Auditors are not for your company. Auditors are for your investors. Auditors are not your friends. If you are investing a large amount of money in a company, and they are using a non-Big 4 firm, then any problems are on you.
I've routinely joked to my wife that her life would be much easier if they fired their auditors and went with BDO or some smaller auditing that they could bully around. The thing is, that's exactly how companies with weak accounting think, and FTX proves that point.
It’s not about auditors bring your friends. The Big 4 are only marginally better than their competitors and the Anderson scandal proved definitely that they are not in themselves a proof that things are fine. The idea that there is something fishy with companies not using the Big 4 as auditors is just wrong.
That's mostly fair, but the Big 4 are very good at billing partner prices for junior work and some of the mid-tier companies do excellent work for a much better rate.
I think it just depends how well a company's CFO knows the firm partners from the last round of golf as to whether they will go easy on your audit.
All the big 4 have been caught turning a blind eye over the last few years to win big contracts. Wirecard, Carillion and NMC Health all spring to mind for me in Europe. If i have 3 committed to memory there are many more.
All the "audit" firms are corrupt, regulation has utterly failed.
Only that crypto is so unregulated that is hard to define what to audit against. And FTX wad never fully audited anyways, something which woupd be impossible with non-crypto equivalents of whatever FTX was beyond a major scam.
Exactly. However the serious participants in the cryptocurrency space have been begging for regulation.
The complaint however is that the regulations that have been proposed are trying to pidgeonhole the different parts of digital assets and decentralised finance (not defi but decentralised financial services as a whole) into existing categories that they don't cleanly fit in.
Cryptocurrency for example isn't a commodity (representation of a resource) or a security(representation of ownership/control in an organisation/system). It can never fit cleanly under one definition or the other. Some tokens would fit cleanly under the definition of a security, some under the definition of a commodity, and some cleanly under neither.
Likewise, node, relay, and validator operators for networks don't really fit cleanly under any given existing set of regulatory guidelines. Regulations for Money Service Businesses for example are overly restrictive and essentially outlaw any existing cryptocurrency operator from even attempting to operate in the US. It's not that the stated goals are impossible to comply with but rather that the specifics of the regulations are. Conversely, some of the much laxer proposed regulations wouldn't adequately cover operators and would leave the door open to abuses.
AML and KYC regulations are particularly problematic. They mean well and the spirit of the regulations should be adhered to but they have not been written in a way that is compatible with this tech. Networks with privacy preserving transactions can comply with AML & KYC. Projects on those networks can as well. It won't however be in a way compliant with the direct reporting of user identities. Even if you wanted to comply with KYC & AML, you physically couldn't. Instead you can build infrastructure to comply KYC and AML via DIDs, ZK-proofs, and conditional release of private information (via functional encryption and a number of other techniques).
There's a multitude of ways to handle the regulatory complexity without legally crippling privacy preserving & decentralised tech. It just requires that regulators actually work with the communities that have been trying to do things proper and kosher. Instead regulators have essentially ignored the industry's requests & proposals in whole, claimed to have heard nothing, and plowed forward with pushing regulations that would cripple the legitimately useful technology in the space.
Begging for regulation, like SBF? Officially regulated or not, as an exchange you can still insist on a) have one of the big 4 adivise you on whether you are a bank, a broker or whatever else exists in finance b) define internal controls and processes based on a) and have c) one of the other big 4 properly audit you against b).
SBF even admitted that his insistence on regulation was just a front.
Oh I agree. Traditional centralised exchanges (CEX) are largely normal exchanges. Of all the things in the cryptocurrency space, they are one of the only things that cleanly fits into an existing box.
Binance, FTX, Coinbase, Kraken, CoinEx, etc are all just traditional financial exchanges and should be forced to comply with existing regulations because they can. They can do traditional KYC and AML in addition to the controls you mentioned because they are centralised services that directly interact with traditional financial services (banking, wire transfer, etc) The only real open question for those services is asset classification.
If those services wanted to comply with regulations, they could do so voluntarily but they aren't actually interested in that like you mentioned.
The issue is that any time regulations come around, they end up misclassifying the network and decentralised projects in the process.
TLDR: Agreed on all accounts with regards to centralised exchanges. My main complaint is that so far the suggested regulations have not fit well onto the rest of the space.
I guess this might be a nitpick, but I don't think most cryptocurrency exchanges do function like "traditional financial exchanges." They seem to operate more like a combination of exchange and brokerage.
I'm not an expert but I don't think "traditional financial exchanges" hold assets to be traded on behalf of customers. I think they are just meeting points for traders, and they host the public order book.
> And people act like this is a problem with cryptcurrency, but it's really a problem with people in corporations behaving badly.
Cryptocurrency is designed for, and has a major selling point, that it makes it easier for people to get away with actions which are socially considered bad and evade controls designed to detect, prevent, and reverse such actions.
To the extent that design works, it doesn't just protect the benign little-guy against malign authorities.
Cryptocurrency is a useful proxy for people behaving badly. Maybe because it’s unregulated, maybe because it was such an easy target for grifters of all sorts.
"To prepare a proof of reserves report, an auditor uses procedures agreed with the company but does not vouch for whether those procedures are appropriate. The auditor also does not give any assurance or opinion over the numbers in the report, as it would in a full financial audit."
What does it say that a lower-tier accounting firm wouldn't even complete this garbage process?
They're not in the big four but they are quite large and well respected, at least they were until they - and BDO, another large accounting firm - were flagged as insufficient in terms of oversight by the UK regulators.
I don't know much about European accounting firms. But the rest of your comment seems to contradict your initial claim -- i.e. they are not Big Four and they have had a recent scandal.
They are in the top 10 in my country and in many others, and they have been cautioned, which is regulator speech for 'improve your act or we'll go after you'. That means that they are on thin ice with respect to any future mistakes (specifically in their crypto division) and that their reputation (for the whole company) is at risk. The effect is that they will go through their customer portfolio and decide which ones they feel are negatively affecting their risk profile and apparently this is one risk that they are not willing to take.
If this was a canary in the coalmine it just started wheezing strangely and it looks a little dizzy.
If it sounded reassuring to you then I should work on my writing skills, it certainly wasn't meant that way.
> sounds like a reason to leave the mine.
Absolutely, if you have funds in this - and any other unaudited - exchange GTFO or you may lose everything. Either their claim that they have the funds is real and you get your money and later you can re-deposit it or you'll be at least not one of the ones left holding the bag.
I read it as a mid-tier accounting firm selling their seal of approval to raise income on sketchy accounts. That's not really news (or effective) unless the accounting firm has some respectability (like Aurthur Anderson ;^).
I've been in the financial services world since 2007 and have come across Mazars about as often as I've seen work from the big 4, they're simply a bit lower on the totem pole image wise but their non-crypto departments deliver pretty solid work.
The big differentiators are the price point and their ability to create an army of consultants on a moments notice where required. The big four clearly have an edge in those cases - at a price.
If Mazars is heading out the door you should try to beat them to the curb.
> the rest of your comment seems to contradict your initial claim -- i.e. they are not Big Four and they have had a recent scandal.
It doesn't contradict it IMO:
1) In terms of the criticism from the FRC (which I believe is the 'scandal' you are talking about) KPMG were also criticised by the FRC so also would fall foul of this.
2) Just because a company isn't one of the 'big four' doesn't mean that they are lower tier.
Mazars and BDO are large yes, but they're not well respected. Over the past decade, both have had the ignominious distinction of having the worst PCAOB review scores of the top 100 accounting firms. It appears that their auditing practices in the U.K. aren't any better. (And both Mazars and BDO provided tax and auditing services to the Zuma and Ramaphosa administrations in South Africa, though this is because BDO's former S.A. member firm became Mazar's S.A. member firm.)
A large part of my early career in tax was fixing the mistakes made by tax advisors at these two firms.
Those who know, avoid BDO. (And Mazars too. They're actually worse.)
Is there a resource to look up such things for future reference? Furthermore, are any open-source projects familiar with any of these top 100 accounting firms?
They are big, but definitely lower tier. They aren’t even in the top 10 globally, so literally lower tier.
For example, the smallest of the big4 had $32B just in its audit and accounting section. Mazars had $2B in its entire organization, including advisory.
They are by definition lower-tier, as they don't have the resources to run an audit for a firm that purportedly maintains billions in reserves. A contract of that size wouldn't end up at a regional arm in South Africa anyway.
Big 4 auditors aren't exactly cheap, but there is a reason why they audit all the major firms. Mazar's biggest customer appears to be the Trump Organization.
> as they don't have the resources to run an audit for a firm that purportedly maintains billions in reserves
I don't think the resources are the real problem.
The real problem is that Mazars has already been cautioned and they know full well that if Binance goes under their reputation is toast if they keep underwriting them.
Auditing a firm is not an act of charity. It’s a contract. Binance has either asked zero accountants to audit their billions in reserves, or zero have taken the job. Mazars international probably got scared and leaned on the partner. The auditing of a firm this size is usually not a very big deal and nowhere near the capacity of a partner with all the roles below.
Cz said to CNBC that the big four can't audit a crypto exchange. Then the reporters told him that Coinbase is audited by Deloitte. He didn't really have an answer, it's quite awkward clip.
I disliked working with Deloitte at my first real job, i thought they were asking too much details and putting some useless constraints that had nothing to do with opsec in real life, and that we (me and the manager) had to lightly bullshit through.
Then I worked at a big bank, with an internal audit team, and tbh, I think retrospectively working with Deloitte was the best experience I could have, they are really professional and their price is less surprising to me now. Looking back, i just didn't know better.
They might both be right. The big4 aren’t really each a homogenous group, rather each country is its own partnership (I think the central registrations are all now in Switzerland).
It’s possible the USA Big4 will touch a crypto firm and… wherever Binance is based… they won’t.
It means you told the auditor how you want to be audited, and they did it.
Generally speaking, if you look hard enough, you could find an auditor that will happily audit your number of nosehairs, or talking parrots, or not ask too many questions about whether or not your shitcoins reserves are actually worth XY billion.
You may need to scrape the bottom of the barrel for that, though.
Mazars is supposed to be quite reputable. How they would agree to this, and endanger their entire firm, is beyond me. But then again, plenty of VCs also agreed to lend their reputation (and capital) to crypto firms with opaque finances and governance… I hope this turns into a lasting scarlet letter.
They might - but this doesn't imply any wrongdoing. Maybe everybody will be able to cash out and get all their money back - but then at that point there's no business left for Binance and they go bankrupt. Or, of course, the usual and everybody get hosed.
> However, the accounting firm said on Friday that it had “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”. According to communications seen by the Financial Times, the level of media focus on the matter was also a factor in Mazars’ decision ... Mazars’ decision to halt work on proof of reserves reports was not driven by specific financial problems at any of the companies, said a person briefed on its decision. The firm’s work was so limited that it had “not looked that much” into the financial position of the companies ... Some people at Mazars feared that despite caveats in its reports the firm was “lending credibility to a very volatile sector” and felt it had been “naive” and “silly” to take on the work, the person added.
Nothing indicating that audit did not go well, but that because of its limited scope, the auditor wants to avoid bad PR.
Binance being an exchange, they make money whether cash goes in or out. so outflows are in a way good business?
I don't know if you have ever worked with a large accounting firm but when they 'pause their activity' that means that they are not going to tie their name to yours, effectively that's as much as saying we will not go down with you. Alternative reading is that they found fraud but they don't want to be the ones to ring the bell on a customer.
Binance is an exchange that holds balances, and those balances are in their internal coin, which supposedly is backed by their reserves. But as you've been able to see in the FTX affair that isn't always true and that is exactly the bit that Mazars refuses to continue to work on. Let's assume they know more than you and I and take it as a sign.
Keep in mind that an internal stable coin ledger is just a bunch of numbers that need not necessarily be backed by anything at all.
> when they 'pause their activity' that means that they are not going to tie their name to yours
A parallel that might help people understand this is a "no recommendation" for an employee. When someone is enjoined from saying anything actually negative, silence can speak volumes.
What matters is whether or not when you add up all of reserves and subtract the liabilities that the balance is positive indicationg the firm is still solvent. If they've been leveraging or borrowing from the reserves then the proof-of-reserves process (which they themselves have created) is the only thing that they can use to shuffle the books to the point that it looks as if they are still solvent.
The way money has been routed between various accounts (both internal and external) suggests that they are using timing rather than actual reserves to make it look as though they are solvent when in fact they are not. Time will tell if that is an accurate reading of the situation.
I think the point was, it wasn't even an audit, and Mazars is worried that people will misconstrue it as them giving Binance a clean bill of health (and then hate Mazars if Binance comes crashing down).
Also, presumably Binance has reserves because it needs them. Also, wouldn't the same logic apply to FTX? But then it turned out they were playing with the customers' money.
The title puts "halts proof of reserves work" next to "outflows hit $6B", which on quick reading implies that they halted the actual "audit" presumably because something went wrong , hence why i think it's misleading
And while the article makes it clear that they withheld their report for PR reasons, I'm sure most people here will assume that the "audit" went wrong
It's a journalist's job to be suspicious. Yeah, maybe it's a total coincidence that these things happened together. Maybe the rat just happened to be leaving this listing and waterlogged ship! To visit its relatives! But that's not how a journalist thinks.
Keeping in mind that it is indeed not a coincidence, since the whole reason why binance wanted the "audit" is the whole crypto debacle and FTX, and that auditors did not wish to audit any non-us-based exchange
Chartered accounts are liable for their work. Both Mazars and BDO have already been warned by the UK regulators their oversight is insufficient in July of this year. If they end up being associated with Binance and Binance goes under it could well take Mazars with it, there is good precedent for that, see Enron and Arthur Andersen.
Precisely. If they end up dry then that's end of story for them and Mazars as their auditors may well end up in the spotlight and/or the crosshairs of those that wish to seek redress.
