Post the liquidity crisis and acquisition of cryptocurrency exchange FTX, Changpeng “CZ” Zhao, CEO, Binance, stated that his exchange aims to begin a Proof-of-Reserves audit system for permitting verification of its digital asset holdings, as reported by Cointelegraph.
According to Cointelegraph, through a November 8, 2022, post, Zhao mentioned the implementation of a Proof-of-Reserve mechanism at Binance on account of providing transparency through the use of Merkle Trees, a data structure for encoding blockchain data. Reportedly, a Proof-of-Reserve audit is mainly conducted by an independent third party for assurance that custodian’s assets are owned as claimed.
On the basis of information by Cointelegraph, Zhao’s intention to start Proof-of-Reserves comes post Binance agreement for buying rival cryptocurrency exchange FTX happened on November 8, 2022. It is believed that FTX is suffering from financial instability despite Sam Bankman-Fried, CEO, FTX, initially dismissing the claims. On November 8, 2022, Sergey Nazarov, CEO, Chainlink, expressed his views through a tweet on how a cryptographic-oriented Proof-of-Reserves mechanism could give insights to investors on the solvency situation of a trading venue or financial institution.
“It is clear that cryptographically proving the solvency of trading venues and financial institutions is becoming the new industry standard. Proof of Reserves is a great example of a cryptographically guaranteed financial world that starts in crypto going on to mainstream finance,” Nazarov stated.
Moreover, Cointelegraph noted that since February, 2022, cryptocurrency exchange Kraken has put into action a cryptographic accounting procedure for allowing users verify their token balances. Through a November 8, 2022, post, cryptocurrency exchange OKX also made the announcement of unveiling a Merkle tree-based Proof-of-Reserves audit system.
(With insights from Cointelegraph)