Crypto exchange KuCoin, an originally Chinese exchange headquartered in Seychelles, recently hired Mazars, Donald Trump‘s former corporate accounting firm, for its Proof of Reserves.
Proof of Reserves became particularly necessary for all exchanges after the collapse of FTX and following the words of Changpeng Zhao, the CEO of Binance, who felt this process was necessary first and foremost for his platform.
And indeed, Mazars itself was also recently hired to oversee Binance’s PoR.
KuCoin exchange in favor of PoR: more transparency and security for crypto
As anticipated, crypto exchange KuCoin has hired international accounting firm Mazars for a third-party audit of its Proof of Reserve (PoR).
Importantly, KuCoin, in addition to being a cryptocurrency exchange, offers a wide selection of crypto assets for purchase and sale, as well as the ability to access trading services. In addition, it offers token listing, Launchpads and also lending, both to be obtained and to be offered to third parties.
In any case, according to an announcement on 5 December, the PoR audit will provide the exchange’s customers with additional transparency and reports on whether their assets are collateralized in scope.
Along with details on principal, trade, margin, and contract accounts for Bitcoin (BTC) and Ether (ETH), as well as Tether (USDT) and USD Coin (USDC) stablecoins.
The report should be available on KuCoin’s official website within a few weeks. KuCoin CEO Johnny Lyu said the move is the next step in the exchange’s efforts to provide transparency on user funds.
Wiehann Olivier, partner at KuCoin, also noted:
“After recent events, there is a desperate need for further transparency in the industry and we are confident that offering Mazars PoR service to KuCoin and other international cryptocurrency exchanges will help build trust through transparency.”
Mazars as official auditor for Binance’s PoR
As anticipated, Mazars was also appointed as the official auditor to conduct the third-party financial audit in Binance‘s PoR on 30 November. Bitcoin information shared publicly by Binance is already under review.
Mazars is based in Paris, is a leading international accounting firm and has previously worked for former US President Donald Trump’s company. According to reports, the company cut ties with Trump and his family in 2022.
Currently, KuCoin and Binance are among the six cryptocurrency companies asked by US Senator Ron Wyden to provide consumer protection information by 12 December.
Specifically, Wyden asked Binance, Coinbase, Bitfinex, Gemini, Kraken, and KuCoin for information on subsidiaries, safeguards for consumer assets, use of customer data, and protections against market manipulation.
The senator argued that cryptocurrency users with funds in FTX did not have such protections as those offered by banks or brokers registered under the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation.
KuCoin’s double investment exposed to criticism on Twitter
In the aftermath of FTX’s failure, cryptocurrency watchers on Twitter set their sights on KuCoin, the world’s fourth-largest exchange by trading volume. Indeed, critics have identified a potential problem in the form of KuCoin’s complex options product called “dual investment,” which allows customers to earn interest rates of up to 300% for depositing cryptocurrencies.
Specifically, a popular crypto Twitter account by the name Pentoshi commented on KuCoin’s double investment, attaching a screenshot of the astronomical rates and writing:
what is happening on Kucoin?
USDT 100%? eth 186%?
is this a glitch or what is this? pic.twitter.com/NqNUdMDfKA
— Pentoshi 🐧 (@Pentosh1) November 29, 2022
“What is happening on Kucoin? USDT 100%? eth 186%? Is this a glitch or what is this?”
This is because the high rates on KuCoin have been reminiscent of the glory days of now-disgraced platforms like Celsius and BlockFi, where seemingly impossible returns were promised to users for owning cryptocurrencies.
However, in an interview with Fortune, KuCoin CEO Johnny Lyu defended the exchange’s product, arguing that it is different from other earning products and that KuCoin provides adequate warnings to its users.
“If customers use the products after being informed of their risk and then engage in reckless behavior, the only thing we can express is regret.”
In fact, with dual investing, users buy an options contract, which means they commit to sell or buy a cryptocurrency at a future date for a target price, earning interest in return.
The product is not protected by principal, which means that users may receive less than they initially paid in, which explains the high rewards, but also the relative risk compared to earning products on other lending platforms.
Unfortunately, since the collapse of FTX, retail investors have had increasing access to complicated derivative products such as dual investing, leading to huge losses for inexperienced traders. And, the volatile nature of cryptocurrencies and the dangling of high yields only add to the danger.
Lyu said the sole responsibility of a platform like KuCoin is to expose the possible risks to its users, which it does by tagging double investing with an “advanced” tag and including an FAQ at the bottom of the product page explaining how it works.