Some of you may not know, but Binance owns CoinMarketCap (CMC). And the platform recently released what it calls a "Proof of Reserves" feature. But, interestingly, CMC has used the new feature launch to inaccurately portray that Binance has provided Proof of Reserves.

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What is Proof of Reserves?

First off, let's get a (brief) understanding of what Proof of Reserves actually is. Note that there is no one standard way to conduct PoR. However, Nic Carter, one of the co-founders of Coin Metrics, a crypto analytics firm, has been discussing Proof of Reserves for several years.

On his website, Nic Carter introduces PoR as:

Proof of Reserves is the idea that custodial businesses holding cryptocurrency should create public facing attestations as to their reserves, matched up with a proof of user balances (liabilities). The equation is simple (in theory):

Proof of Reserves + Proof of Liability = Proof of Solvency

I recommend you read the entire page if you have time, lots of great info in there.

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Binance's PoR promises + wallet disclosure

Following the FTX collapse, the CEO of Binance, Changpeng Zhao (CZ), promised to produce Proof of Reserves in a Nov 8 tweet. A few days later, Binance publicly revealed its hot and cold wallets. Note that Binance did not provide proof of user balances (liabilities), just a public disclosure of the wallets they control.

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CMC (Binance) misleads about PoR

So (as of Nov 24), Binance has not produced Proof of Reserves. Despite this, CoinMarketCap (owned by Binance) went ahead and used Binance as an example for Proof of Reserves.

https://twitter.com/CoinMarketCap/status/1594993576420970496

Check out this example of PoR data shown for #Binance exchange

What's more, CoinMarketCap is misleading CMC users as to what PoR is. The entire feature is being branded as a PoR feature everywhere except where the feature exists. Meanwhile, the PoR checkmark is being given to exchanges who have not even produced a real PoR attestation. Note that CMC doesn't even label the checkmark as PoR in its user interface or on exchange pages.

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https://preview.redd.it/w6cc0ky4iz1a1.png?width=367&format=png&auto=webp&s=46386dc38da455012158147d4b43e2cc06e6df19

But, CMC is quick to describe the feature as PoR on its website and Twitter.

With this need for transparency in mind, CoinMarketCap is now showing crypto exchanges’ proof-of-reserves on our ranking pages…

You can see we have added a “reserves” icon right besides the exchanges. If an exchange has an icon, it means that they support proof-of-reserves right now…

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Maybe they are mixing up terms?

Here's a PoR info page provided by CoinMarketCap, which appears to have remoulded the definition of PoR from Nic Carter's website to fit CoinMarketCap's / Binance's narrative.

Proof of Reserves (PoR) is a method using cryptographic verification to demonstrate possession of digital assets…

They seem to have vaguely redefined and remoulded what Nic Carter, one of the go-to sources for PoR discussions, wrote on his website. CMC says PoR is used "to demonstrate their solvency" but includes no mention of liabilities when introducing what PoR is.

Ironically, also on the page is Nic Carter's list of exchanges that voluntarily provided PoR. Down near the bottom of the list is Binance.

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"proof of assets"

So, CoinMarketCap (again, owned by Binance) doesn't even list Binance as having produced Proof of Reserves on this page, just Proof of Assets with no liabilities. Meanwhile, on Twitter, CZ has already said that the wallets were released while they wait "for the proof-of-reserves to finish." Similarly, this is how it was described on binance.com.

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Success!

The media has already eaten this up, also referring to it as a Proof of Reserves tracker or feature. Did journalists not look beyond the branding and launch publicity to see what the feature actually is? Are they just using PoR as a blanket term for any exchange that discloses their wallet address? Because some of CMC's "checkmarked" exchanges haven't actually provided PoR, including Binance. They have just disclosed wallet addresses with no form of real-time monitoring, external auditor, Merkle tree, or proof of liabilities.

Further, several exchanges that have actually provided PoR are omitted. Take Kraken, for example, which provided a form of auditor-assisted PoR with Merkle tree verification once in 2020 and again this year. The exact method Binance has been talking about. No checkmark. Even when this feature launched two days ago (Nov 22), the other exchanges all had the checkmark out the door, but not those who were ahead of the game (Kraken, BitMex, Gate.io).

Now, in comparison, CoinGecko (not owned by any exchange) released a similar feature but actually includes details about each exchange's reserves info and is not blanket-labelling exchanges (i.e. Binance) as an example of having produced PoR, just "exchange reserves."

CoinGecko definition of PoR:

PoR demonstrates an institution / exchange’s ability to honor withdrawals from its platform at all times. Broadly, it consists of two parts – a current record of customers’ token deposits (known as liabilities), and a pool of tokens held within a set of exchange addresses (also known as assets).

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Conclusion

The feature branded as an indicator of "Proof of Reserves" only indicates that an exchange publicly disclosed all its wallets.

You decide for yourself. But, to me, CMC looks like an unreliable platform for crypto information and is being used as a megaphone to boost Binance's reputation with millions of users that rely on CMC as a source of info.