Binance has been under intense scrutiny since it released its proof of reserves about a month ago. The crypto exchange had done so in a bid to assure users that all deposited funds were safe and that it was not going to collapse like FTX, but this had backfired spectacularly for the company. As the FUD ramped up, more than $6 billion was withdrawn from the exchange in a matter of days. Now, Binance has come forward to address the most pressing questions from the community.
Binance Says Assets Are Fully Backed
In a blog post published on its website on Friday, Binance addressed the most prominent questions from community members over the last two weeks, and that is whether the exchange had enough funds to back all user deposits.
Binance said that user assets on the crypto exchange were backed at a 1:1 ratio, which means they would be able to withdraw their coins at any time. The company explained that it does not mix user funds with company funds. “The company’s assets are completely separated from users’ managed assets,” Binance said. “We have enough capital reserves to cover daily operations. And get through any tough cycles.”
The crypto exchange further explained that it was not operating using debt. According to the post, Binance makes its profit from transaction fees on its platform, as well as returns on investments made through its investment and acquisitions arm Binance Labs. Binance Labs reportedly has $7.5 billion in total assets under management and has recorded immense returns on investment of 2,100% from the over 200 projects the company has invested in since 2018.
“Binance will not embezzle users’ funds for any transactions or investments, nor does it have any debts, nor is it on the list of creditors of any company that has recently gone bankrupt. A few negative cases do not represent the entire industry,” the post read.
Why Financial Information Are Not Disclosed
Another development in the massive FUD against the crypto exchange had been that its finances were a “black box.” This is because the financial information of the company has not been disclosed, and Binance addresses the reason why it is so.
Since it is a private company and not a listed company, it is not obligated to disclose its financial obligation. It further adds that since the company does not need any external financing, nor does it have external investors, its financial history can be kept private. Add in the fact that Binance does not plan to go public, it can continue to operate the way it is as long as it remains self-sufficient.
I”n many jurisdictions where we operate, we have shared or are sharing operational and financial information as required by local regulators,” Binance revealed. “Some typically require a disclosure process of up to six months due to the sheer volume of information.”
As for its audit, Binance had previously stated it was looking for auditors to work with but the Big Four did not want to work with a private crypto company. These traditional accounting firms have a hard time verifying the reserve assets because the exchanges are encrypted. Also, the largely unregulated landscape of the crypto industry has also served to scare them away for fear of regulatory scrutiny and lawsuits.