It’s now a couple of weeks since the infamous FTX collapse, in which the firm faced a liquidity problem and stopped processing withdrawals due to the inability to meet demand from investors and end users. Post this, it’s been observed that several other crypto companies are attempting to be more transparent with their users.
Binance’s New Initiative
Binance, a cryptocurrency exchange, has unveiled a new website that explains its proof-of-reserves system. The purpose of a Proof of Reserves (PoR) is to verify that a custodian actually has the assets it says it does on behalf of its clients. It is an independent audit carried out by a third party.
Binance currently has a reserve ratio of 101%. It signifies that the company has enough bitcoins to cover the balances of all users. Binance started by sharing wallet addresses for crypto assets worth billions of dollars. The company demonstrated with this action that it does, in fact, own a sizable asset base and is capable of handling a sizable volume of withdrawals.
Move Toward Transparency Or Futile Effort?
With its proof-of-reserves, Binance aimed to establish a standard for the sector. This approach, according to Kraken’s CEO and co-founder Jesse Powell, is “pointless”.
He claims this because, according to him, exchanges don’t account for liabilities. Powell claims that in order for a proof-of-reserve audit to be complete, it must include the total of client liabilities, user-verifiable cryptographic proof that each account was included in the total, and signatures proving the custodian’s authority over the wallets.
Powell continued by saying that the aim of being fully transparent was to determine whether an exchange had MORE cryptocurrency in its possession than it owed to its customers.
In response to Jesse’s comment, CZ pointed out that it was in crypto that exchange owners publicly called one another out, and he believed that this was beneficial for a more positive crypto atmosphere.