Here’s What Binance’s Latest Reserves Report Says About Its Ability To Cover User Deposits

Binance, the largest crypto exchange in the world, just released its latest report for its reserves. Following the FTX liquidity issue debacle, crypto exchanges have periodically published reports of their reserve holdings to address investor concerns. And with billions of dollars of digital assets under its control, Binance’s ability to cover user deposits in the event of massive withdrawals is critical.

Binance Proof Of Reserves Report

Binance just released its latest proof-of-reserves report to provide transparency into its reserves. The report shows Binance holds more than enough crypto and cash to cover every dollar of user funds. On top of that, Binance also maintains additional reserves, as the report shows each crypto asset is covered by more than 100%. 

According to the company’s report website, the reserve is done by self-verification auditing using Merkle trees. Crypto exchanges like Binance usually use a Merkle tree to show proof of their reserves, as it enables the consolidation of large amounts of data into a single hash. As a result, users can easily verify specific contents included within a particular set of hashed data.

The total asset holdings within every customer’s account are taken during the time of audit and aggregated into a Merkle tree. The Merkle tree is made of a root subdivided using Merkle Leaf. Any change in balance in the Merkle leaf changes the Merkle root, and Binance users can use the Merkle leaf to verify that their account balance was included in the report.

The scope of the reserve report includes the ratio of Binance’s net balances to customer net balances. According to the report, Binance has a BTC ratio of 105.61%, ETH ratio of 102.71%, BNB ratio of 113.85%, USDT ratio of 117.99%, BUSD ratio of 117.90%, USDC ratio of 101.62%, LTC ratio of 100.94%, and XRP ratio of 103.50%.

Transparency to Crypto Investors

Reserve reports aim to boost transparency in the often opaque crypto industry. Crypto investors, particularly BTC holders, are always reluctant to move their assets to centralized exchanges. By disclosing details on financial positions, the reports could help build trust with users and give investors more insight into exchanges’ overall health and stability. 

Binance, along with eight other big crypto exchanges, promised to publish their Merkle tree reserve certificates in December 2022 after FTX became insolvent.

All crypto exchanges should do merkle-tree proof-of-reserves.

Banks run on fractional reserves.
Crypto exchanges should not.@Binance will start to do proof-of-reserves soon. Full transparency.

— CZ Binance (@cz_binance) November 8, 2022

However, experts have claimed Merkle trees are pointless as it fails to include liabilities and accounts with negative balances. With the crypto market currently struggling to find a new bullish form, Binance’s latest reserve report does provide insights into the financial stability and security of the exchange.