Binance outflows hit $6B as Mazars halts ‘proof of reserves’ work
ft.com
ft.com
Possibilities:
1) They're insolvent. Liabilities exceed assets. (Like FTX.)
2) Their accounting is so screwed up they can't produce a balance sheet. (Like FTX).
3) They have a large number of interconnected corporate entities and nobody has the big picture. (Like FTX).
4) They have enough assets on the books to look solvent, but many of those assets are overvalued or internal transactions. (Like FTX).
OK, crypto people. Full GAPP audit or we all assume you're broke.
If you have assets in an un-audited exchange, get them out now.
This isn't true, is it? FTX had <5 corporate entities, right?
The issue was more with (1) and (2).
https://qz.com/ftx-bankruptcy-filing-reveals-a-remarkably-co...
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
That's not a "one corporate entity + a few international ones" type of endeavor.
Bitfinex loaned money to Tether. On the loan contract, three people, we'll call them AB, CD, and EF, signed the contract on Bitfinex's behalf.
On the other side of the contract, Tether signed the contract for the loan. The three people on the loan signatories page for Tether? AB, CD, and EF.
Right, but tether isn’t solvent either
The comment said they are solvent. Not that they might be. Given the present facts and circumstances, that’s unfounded. (EDIT: Never mind.)
The comment said the fifth possibility is that they are solvent.
I do not believe this is sufficiently well-proven to be something we can take as a given.
5) Binance does significant money laundering for Iran and Russia, so any complete picture of their balance sheet would invite sanctions and international retribution.
https://www.reuters.com/business/finance/exclusive-crypto-ex...
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.
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.
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.
FTX passed a GAAP audit and was still broke. Safer just to take custody of your coins while your still can.
2021-08-27: "Both FTX and FTX.US have completed requirements to pass the US Generally Accepted Accounting Principles (GAAP) audit" https://blockworks.co/news/ftx-joins-coinbase-kraken-with-us...
Do we have a source mentioning the auditor?
[1] https://www.ibtimes.com/crypto-auditors-under-fire-ftx-meltd...
https://www.coindesk.com/layer2/2022/11/18/a-complete-failur...
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.
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.
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
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; this is covered in detail in the FTX et al. bankruptcy filing.
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.
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.
Why? Do you want to buy?
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.
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.
This is legally meaningless. Literally anyone can say they completed requirements to pass, they didn't actually pass
Instead, my point is that an exchange saying that they passed a GAAP audit isn't the level of positive signal my parent seems to think it is.
2021-07-21 "Yesterday, FTX became the first (?) crypto derivatives exchange to complete a GAAP audit!" -- https://mobile.twitter.com/sbf_ftx/status/142135472191111577...
2021-08 -26: "Both @FTX_Official and @ftx_us have passed US GAAP audits and plan to continue getting audits going forward." --https://twitter.com/SBF_FTX/status/1431087427154849795
The only thing that would save it would be a bail out by the Chinese government.
Maybe time to make crypto decentralized?
Is there money in that?
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.
https://www.coindesk.com/web3/2022/12/16/trump-nft-collectio...
Not a finance pro, but as I understand it:
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.
It's ruthless but I don't think it says anything about their finances. Their play made sense whether they were strong or weak.
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.
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...)
maybe you havent heard but it's possible to send "crypto" (lol) directly from person to person
Ewww, gross!
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.
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?
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.
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.
Not your keys, not your crypto. Anyone storing their crypto on any exchange has this risk.
There really aren't a lot of good possibilities here, 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.
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.
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."
From Bloomberg: https://www.bloomberg.com/news/articles/2022-05-11/coinbase-...
Basically, there's no legal precedent. It's anyone's best guess.
We’re about to find out soon.
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.
[1] https://www.coinfirm.com/blog/japan-crypto-asset-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.
> 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
Source: page 96: https://s27.q4cdn.com/397450999/files/doc_financials/2022/q3...
https://finance.yahoo.com/news/coinbase-keep-customer-balanc...
What are your keys worth if the price of Bitcoin is close to zero?
https://cointelegraph.com/news/bitcoin-is-already-at-40-of-a...
Their argument is that a currency being “replaced” for “political, economic, and cultural reasons” isn’t a currency failing. What?
If they’ve “debunked” the 27 year figure, then what is the correct average lifespan of fiat currencies?
Did the Deutsche Mark fail when it was replaced by the Euro? Come on.
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.
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.
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".
The Rentenmark was legitimately an absolute debacle, one of the worst of all time right up there with the Zimbabwean dollar
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.
> 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.
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?
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.
If not, in what way is BTC a fiat currency?
Also, coins eith a fixed possible supply, such as Bitcoin, act more like commodities than fiat money.
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.
Then comes office infrastructure, if any and cloud assets.
They have >4k employees. Assuming they make US minimum wage, they would cost almost 240,000,000/yr. It’s almost certainly MUCH higher.
They spend $550b a quarter on R/D. That’s likely mostly salary.
https://s27.q4cdn.com/397450999/files/doc_financials/2022/q3...
What does b stand for again…
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.
In 2018, 90% of employees received their salaries in BNB
https://www.ccn.com/90-of-employees-at-major-crypto-exchange...
Given their "grossly inaccurate filings" I wouldn't trust random tweets https://www.ft.com/content/3fb2f6cf-e132-43f4-9d6a-34fd13eb8...
They had $365mm in revenue from transactions. They has $1.1b in expenses. $550mm is employee/r&d.
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.
If I win, I keep the money. If I lose... You'll have a problem a few years down the road, when you try to withdraw.
Every one of the allergic-to-sunlight exchanges has a huge incentive to do what I described.
They were making money with the current amount of spending but then crypto flipped
They probably will have to lay off more people and give up on their current pace of development. Tickets will take 5 months to complete instead of 2
Ha, this is becoming my go-to definition of the lottery.
All current crypto"currencies" which use transaction fees (which is practically all of them) are negative sum games and thus are scams.
This is so simple and people waste billions on not understanding it.
Companies can sell stock to fund useful activity.
This is useful activity for society because senior management deserves more money and they work really hard to earn it. /s
Basically all the DeFi ecosystem boils down to trading one coin for another coin, there is no productive work at the core generating value.
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 stock price represents likelihood of future earnings. That's going to be influenced by a bunch of things not in financial reporting.
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.
Michael Milken even got a presidential pardon,
Currency trading is negative sum. (Zero sum less friction.) So are most derivatives.
One must encapsulate broader effects to find a net gain. Incorporating crypto’s benefit to the poor is such an attempt.
What benefit is that? Not speculative, maybe in the future benefit, but current, concrete, demonstrable benefit.
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.
"Possibly marginally less bad than an unstable fiat currency propped up by a corrupt regime" is not high praise.
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.
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.
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.
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.
Coinbase stock is going to zero.
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.
what % of BTC is held in binance / crypto.com / coinbase?
if one of them fails/has an issue, how much more can BTC fall and then never recover?
what are the % chances something good happens to one of those exchanges and crypto value/demand goes up?
what are the % chances the inverse/opposite happens and crypto goes even lower?
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.
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.
The associated debt was in the subsidiary, and thus didn't show up on the balance sheet.
"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.
Someone got a set of pearls I can clutch?
https://fortune.com/crypto/2022/12/12/binance-investigation-...
> company is in great shape, and customer's assets are safe
Do you have any proof of this? I assume that to know this for sure, you would have some insight into Binance internals?
the fun of sarcasm is knowing enough to recognize it
if somebody is too out of the loop to recognize it and picks an argument, it's collateral damage
Slash s.
$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).
Why exactly, though? That's what I'm asking.
I promise I'm not trolling, I just don't understand the connection.
27 Nov: 1 BNB = 0.0188 Bitcoin; 17 Dec: 1 BNB = 0.0142 Bitcoin
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.
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.
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.
Until a point.
How does this even work?
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.
Matt Damon tells them.
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…
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.
I have a bridge in Brooklyn to sell you. Heck, I'll throw in some Brooklyn Bridge NFTs in, for good measure. 2,533 NFTs in total at $99 each.
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.
"The Dark Secret at the Heart of AI":
https://www.technologyreview.com/2017/04/11/5113/the-dark-se...
and
"Machine Learning Works Great—Mathematicians Just Don't Know Why":
https://www.wired.com/2015/12/machine-learning-works-greatma...
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.
But we already have a whole bunch of examples of (2) where the funds ended up in all kinds of places where they should not have been.
They are leveraging and borrowing from the customer funds with abandon, just like a bank but without the associated regulatory oversight and rulebooks.
The lure of those balances is invariably too great to resist.
I think the folks at JP, etrade, and all of the other regulated exchanges would object to that characterization.
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.
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.
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.
We used to call those a "bank run".
lol
French accounting firm Mazars is pausing all its work with crypto firms - https://news.ycombinator.com/item?id=34026826 - Dec 2022 (39 comments)
First implied statement: 1. Has funds to buy FTX
Second implied statement: 2. has funds to send back due to fraud conveyance claw back
Notice the pattern yet as not one implied statement has been stated as a direct statement.
SBF showed the same amount of obfuscation.
Not good folks.
Binance is shady, but a lot of people in this thread are falling for bear market panic seekers.
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?
Nothing like a good ‘ol stress test
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.
You can read what they've written about FTX here: https://www.ft.com/stream/555b8eaf-51c0-4d66-bbf3-dfe5dd0bca...
Here's a fun one from April 2022 (before even Terraluna): "FTX/ Defi: If it looks like a duck and quacks like a duck . . ." https://www.ft.com/content/eac0e56c-f30b-4591-b603-f971e60dc...
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).
https://help.coinbase.com/en/wallet/getting-started/what-s-t...
Do you have reason to believe this is not the case? Or are you more concerned about a malicious update to the app?
Proof today != proof tomorrow.
> 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.
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.
I agree that it's far from a comprehensive proof though. Perhaps exchanges need to stick to the bigger auditors for now.
An exchange can borrow loads of assets, have an "attestation" that the assets are in their accounts, then pay them back.
Essentially they are operating as banks sans regulatory oversight. It's a recipe for disaster.
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.
Where have we heard this before? Oh yeah:
<Twitter @SBF_FTX> FTX is fine. Assets are fine.
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.
Chase that yield, or get replaced by someone who will.
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 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...
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.
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.
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.
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.
I think you mean lack of legit opportunities to get rich quick, which is not a new phenomenon. Getting rich quick requires a lot of luck.
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
with a high entertainment appeal, might i add!
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.
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.
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.
[0]https://boards.straightdope.com/t/is-instant-stooging-in-mag...
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”.
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!
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.
SBF even admitted that his insistence on regulation was just a front.
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'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.
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.
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.
Armanino is to Mazars as Raspberry Pi is to Apple. They are not even close in stature.
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.
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.
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.
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.
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.
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.
If this was a canary in the coalmine it just started wheezing strangely and it looks a little dizzy.
> If this was a canary in the coalmine it just started wheezing strangely and it looks a little dizzy.
sounds like a reason to leave the mine (i.e. there's something really wrong and this is a warning sign).
> 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.
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.
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.
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.
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.
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.
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.)
Edit: they do! Maybe they can rebrand as “Emphasast”, to put the emphasis on the past. :D
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.
It’s possible the USA Big4 will touch a crypto firm and… wherever Binance is based… they won’t.
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.
> 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?
Outflows are as good as they were for FTX - if there is no 100% coverage of customer deposits.
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.
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
If they saw the same headlines I did they were worried that people were misconstruing it as them giving Binance a clean bill of health
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.
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.
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.
Deloitte audits Coinbase.