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Binance outflows hit $6B as Mazars halts ‘proof of reserves’ work

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Re: Binance outflows hit $6B as Mazars halts ‘proof of reserves’ work

#141

Post by jacquesm »

bufferoverflow wrote: post #133
godzillabrennus wrote: post #86

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.

How do you lose so much money when your business it to charge fees? You'd have to do something really stupid to not make money.

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.

Re: Binance outflows hit $6B as Mazars halts ‘proof of reserves’ work

#142

Post by tofuahdude »

esalman wrote: post #81

Quoted post unavailable.

It is more accurate to separate software from the people operating businesses that use the software.

There are MANY (so, so many) scams in crypto, but the underlying protocols are just protocols.

Just like there are MANY (so, so many) scams that operate with dollars and in the traditional banking system.

Humans are gonna be humans.

Re: Binance outflows hit $6B as Mazars halts ‘proof of reserves’ work

#143

Post by notacoward »

jacquesm wrote: post #25
seydor wrote: post #10

What a misleading title > 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 ... Maz…

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…

> 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.

Re: Binance outflows hit $6B as Mazars halts ‘proof of reserves’ work

#144

Post by jacquesm »

exogenousdata wrote: post #134
jacquesm wrote: post #89

Earlier quoted context omitted.

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.

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). https://finance.yahoo.com/news/coinbase-keep-customer-balanc...

Yes, Polygamous_bat below made the same observation, I wasn't aware of this at all.

Re: Binance outflows hit $6B as Mazars halts ‘proof of reserves’ work

#145

Post by prepend »

jacquesm wrote: post #34
ProjectArcturis wrote: post #32

"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?

Mazars is not lower tier. 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. See: https://www.bloomberg.com/news/articles/2022-07-20/mazars-bd... So they're on thin ice and they will not risk going down with this particular ship.

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.

Re: Binance outflows hit $6B as Mazars halts ‘proof of reserves’ work

#146

Post by jacquesm »

notacoward wrote: post #143
jacquesm wrote: post #25

Earlier quoted context omitted.

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…

> 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.

That's a very good analogy.

Re: Binance outflows hit $6B as Mazars halts ‘proof of reserves’ work

#147

Post by newbie2020 »

jacquesm wrote: post #8
nayuki wrote: post #6

> “We are financially OK,” said Zhao Where have we heard this before? Oh yeah: FTX is fine. Assets are fine.

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 desire to build a better life/make money outweighs the risk. There is some desperation involved for sure.

Re: Binance outflows hit $6B as Mazars halts ‘proof of reserves’ work

#148

Post by ryloric »

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.

Re: Binance outflows hit $6B as Mazars halts ‘proof of reserves’ work

#149

Post by xlbuttplug »

beefield wrote: post #87
xlbuttplug wrote: post #41

Earlier quoted context omitted.

The proof of reserves can be done in such a way that each user can verify that their balance is backed: https://www.kraken.com/proof-of-reserves > Proof of reserves today != proof of reserves tomorrow. You should be able to detect large outflows/inflows from/to their wallets and demand an explanation.

How does Kraken/proof of reserves ensure that in case of bankruptcy there are no creditors with higher privileges?

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.)

Re: Binance outflows hit $6B as Mazars halts ‘proof of reserves’ work

#150

Post by seydor »

notacoward wrote: post #143
jacquesm wrote: post #25

Earlier quoted context omitted.

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…

> 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.

Are any of the auditing companies willing to audit any of the crypto exchanges?
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