How likely is an FTX-like disaster on Binance to happen, if at all, or is it all just a lot of fuss?
The cryptocurrency exchange Binance has faced criticism and “FUD” (fear, uncertainty, and doubt) from some quarters, with some questioning the company’s viability. However, Binance has responded by highlighting its recent withdrawals and releasing a proof-of-reserves report.
According to blockchain analytics tool Nansen, $2.2 billion worth of Ether was stolen from Binance last week. Binance reports that approximately $1.9 billion, or 80% of the average daily net withdrawals, occurred in the past 24 hours.
While it is difficult to predict the likelihood of a catastrophic event occurring on Binance, the company has implemented various security measures and has a track record of responding promptly to potential security threats.
It is worth noting that the cryptocurrency industry as a whole is constantly improving its security measures to reduce the risk of such incidents.
Why is Proof of Reserves in Question?
In the wake of the arrest of FTX’s CEO SBF in the Bahamas and the subsequent demise of the exchange, other cryptocurrency exchanges, including Binance, have taken steps to be more transparent, such as issuing proof-of-reserves reports.
Binance recently released a Proof-of-Reserves report, which was audited by global accounting and tax advisory firm Mazar. The report indicates that Binance has enough funds to fully cover the assets of all its users. The release of this report has raised new concerns about the transparency of Binance and the cryptocurrency industry as a whole.
The cryptocurrency market’s reaction to the “FUD” regarding Binance sent Bitcoin down to $17,000, so let’s examine why Michael Burry deems such speculation “meaningless.” Crypto firm audits are “Pointless”: why?
Michael Bury, founder of Scion Asset Management and famous for predicting and profiting from the US subprime mortgage crisis of 2007-2010, as depicted in Michael Lewis’ book “The Big Short”, has said that the proof-of- Reserve (POR) audit transactions are pointless.
Burry, who is featured in the book and was portrayed by Christian Bale in the film adaptation, has commented on the current Binance auditings.
Barry tweeted about the closure of Mazar Group’s crypto proof-of-reserve audit:
Burry’s tweet addresses a Bloomberg article stating that the French accounting company ceased work on crypto firms due to strong media scrutiny and evidence that markets have not been satisfied by its proof-of-reserves reports, notably for Binance, Crypto.com, and Kucoin.
in conclusion
Despite the growth of Binance compared to other exchanges, the cryptocurrency industry as a whole has faced challenges. According to CryptoSwap, spot exchange trading volumes increased slightly between October and November 2022.
However, Binance CEO Changpeng Zhao has argued that many auditing firms are unable or unwilling to examine cryptocurrency exchanges, user accounts, and blockchains, leading to a lack of confidence in centralized exchanges as demonstrated by the frequency of customer withdrawals.
Zhao also pointed out that audits do not always reveal all potential issues, and some have suggested that such auditing is merely a cover-up and lacks ethical value. It has been a relatively quiet period in the crypto sector in terms of hacks and failures, but concerns remain about the legitimacy of centralized exchanges and audits.
