First Mover Asia: Missing From the Debate About Binance's Proof of Reserves and Auditor, One Metric Shows Another Exchange Could Be in Trouble

Good morning. Good morning.
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Sign up for First Mover, our daily newsletter that puts crypto markets in context. Now that the worst phase of the aftermath to the rapid collapse of Sam Bankman Fried's FTX exchange is over, crypto traders will be dealing with a familiar foe: the Federal Reserve. Last week, Fed Chair Jerome Powell and other top officials indicated that stiff pressure could continue well into 2023. Markets will react in a bearish manner to volatility-crushing fatigue as the Christmas/New Year interval approaches,' QCP Capital, a crypto trading firm, wrote on Telegram Dec. 17. They were flat during Asia trading hours Monday morning, with the CoinDesk Market Index, (CMI), unchanged over the past 24 hour.
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FUD is an acronym that stands for fear, uncertainty, and doubt. It can also be used in crypto lexicon to refer to any new information that favors the bearish side. According to Glassnode, "The outlook for Bitcoin is not assured for this year-end due to the great resistance above $18K despite the continuing seller exhaustion."
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For now, however, on-chain data can be a great guide to find out who's in real trouble. The market panicked almost immediately and pushed Binance's BNB token down by nearly 10%. According to CoinDesk data, it has recovered 4.6% in the past 24 hours.
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These reports shouldn't be called audits because they don't include a key element in any financial report, liabilities. We shouldn't panic either because the reports from Mazars don't contain a key element for any financial report - liabilities. However, there's an interesting metric we can get via on-chain that would not be captured in a Mazars Report, and that is the quality of reserves. (CryptoQuant)In contrast, Binance's reserve of roughly $3 billion is 89% "clean". This metric measures an exchange's dependence on its proprietary token. (CryptoQuant). Huobi's $3 billion reserves are 56.7% clean. Or, to put it another manner, 43.3% are made up of its exchange token.
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This is where we should focus our attention, not Binance. Binance is sixth largest and generates approximately $422 million per day according to CoinGecko data. Binance isn't doing enough to help itself. It temporarily suspended USDC withdrawals (other stablecoins remained closed) and was coy when asked about its controlling company. This is all while Huobi introduces a new way to burn more tokens (think: buyback). This will increase its value. According to CoinGecko data, Huobi's HT token has dropped nearly 40% over the past year and is now valued at $5.46.
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Huobi stated in a press release that there was an increase of 15.94% in the number of HT burned in November, compared to October. This will continue in the first quarter 2023. "Huobi reserves are extremely risky at the moment," wrote Caue Oliveria (one of CryptoQuant’s author-analysts) in a note to CoinDesk. The company's tokens are a threat to its net health as it is hard to verify their authenticity. 'Oliveria stated that FTX's use FTT to secure loans was one of the reasons for its failure. Huobi is also playing a dangerous game. But Bobby Ong, CoinGecko's co-founder and Chief Operative Officer, is more cautious. To get a full understanding of the situation, he told CoinDesk we need to also know Huobi's liabilities. "If an exchange isn't using its collateral to lend money, it doesn’t really matter how clean the reserves are."
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It doesn't matter if every customer has their crypto fully secured 1:1 in proper wallets," he said to CoinDesk via Telegram. Knowing the exchange's liabilities is even more important. Knowing the reserves is only one aspect of the equation. What about the liabilities? "And those liabilities, at the moment, are a mystery
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Emails asking Huobi for comments on CryptoQuant's number and its liabilities were not answered by Huobi. Although Huobi has uploaded its proofs of reserves, these reports and others are missing Huobi's proofs of liabilities. This is why Mazars wants to exit this business. Ong stated that if an exchange has $1Billion in bitcoin liabilities, it should have $1BILLION in cold wallet reserves to back this liability. Why is Binance proof of-reserves auditor Mazars putting a halt to all work for crypto clients Why are ether and bitcoin prices declining? Julio Moreno, senior analyst at CryptoQuant, and Bob Iaccino (Co-founder of Path Trading Partners) join the discussion.
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Robert Le from Pitchbook shares some surprising news regarding venture capital funding in crypto. It lured them to "all-in" on centralized exchanges instead of focusing on real-world uses cases for tokenized-value exchange. Mazars, Binance Proof-ofReserves Auditor, has halted all work for crypto clients. Mazars had previously assessed Binance's bitcoin reserves and found that they were not sufficiently collateralized.