Binance’s Proof-Of-Reserves Report “Makes Sense” With On-Chain Data, Says CryptoQuant

CryptoQuant says Binance’s recently released Proof-of-Reserves report “makes sense” when compared with on-chain data.

Binance’s Bitcoin Liabilities In Proof-Of-Reserves Report Are Consistent With On-Chain Data

The Proof-of-Reserves (PoR) here refers to the public proof that an exchange has backed its customers’ entire deposits with proper collateralization. Since the collapse of FTX, distrust around centralized platforms has grown among investors in the cryptocurrency market, and they have been demanding for exchanges to release PoR reports.

Around a week ago, Binance, the largest exchange by trading volume, revealed its PoR audit report by Mazars, but it was met with scrutiny by some analysts for a few reasons. One of the major points of criticism was that the crypto exchange had the external auditor do the PoR calculations using the method requested by the platform itself.

The analytics firm CryptoQuant has now released its own analysis of the Binance PoR report, to verify whether the data released by the exchange is consistent with on-chain data or not. According to the report, Binance’s Bitcoin liabilities, which was the amount deposited by its users, were 97% collateralized as of 22 Nov 2022. If the amount that the platform has lent out to its users isn’t considered as liabilities, then the collateralization figure rises to 101%.

The platform’s customer liability balance as per the report measured 597,602 BTC on 22 Nov. 2022. Here is a chart that shows how this compares with the Binance’s Bitcoin exchange reserve as measured by CryptoQuant:

CryptoQuant's estimate of the Binance BTC reserves | Source: CryptoQuant

“CryptoQuant’s estimate of Binance’s BTC reserves is an estimate of the exchange’s liabilities, as they are calculated by clustering BTC flows from customers’ wallets to Binance’s exchange wallets,” explains the analytics firm.

As the graph shows, on-chain data put the reserves of the crypto exchange at 591,939 BTC at the same time as the report’s measurement, which is 99% of the figure released by the report. This means that CryptoQuant’s analysis is in agreement with what the PoR report disclosed.

Additionally, the analytics company also noted that none of the erratic behavior seen on FTX prior to it going down is present on Binance’s reserves currently. BNB, the exchange’s own token, makes up for only a bit more than 10% of the exchange’s assets, which is also unlike FTX which had a large portion of its capital in its FTT token.

“Our analysis should not be interpreted as a favorable opinion of Binance as a company, the ecosystem of the BSC/BNB networks, or the BNB token,” cautions CryptoQuant. “It is merely a sign that the amount of BTC Binance exchange says it holds as liabilities at the moment the PoR report was conducted makes sense, according to on-chain data.”

BTC seems to be on the way down | Source: BTCUSD on TradingView

At the time of writing, Bitcoin is trading around $17,500, up 4% in the last week.