With the FTX crisis, many cryptocurrency exchanges began issuing transparency commitments and sharing proofs of reserve.
Exchanges Share Reserve Evidence Data
Alameda’s leaked balance sheet and the subsequent bankruptcy of the FTX exchange pushed the Cryptocurrency market to be more transparent. In this context, Binance was the first exchange to share proof of reserve. Blockchain analysis company Nansen shared the stocks’ proof of reserve on his Twitter account. Exchanges whose assets were calculated included Binance, Crypto.com, OKX, KuCoin, Bitfinex, Huobi, and Deribit.
According to the evidence of reserve announced by Binance, the world’s largest cryptocurrency exchange in terms of trading volume, the exchange has $64.3 billion in assets, excluding Binance Bridge pegged tokens. Of these assets, 33% is Binance USD, while 21.29% is USDT, 10.65% is BTC, 9.45% is ETH, 9.35% is BNB and the rest is other altcoins. The BTC rates held by Binance were also shared with investors. While the exchange’s on-chain reserves are 582 thousand 485 BTC, the customer net balance is announced as 575 thousand 742 BTC. This figure is around 9.5 billion dollars. According to this data provided by Binance, if everyone withdraws their Bitcoin holdings through the exchange, it appears that Binance has enough BTC to process all withdrawals.
According to the Proof of Reserve provided by Crypto.com, the platform’s total assets are worth $2.36 billion. Assets owned by the platform are in Bitcoin, Ethereum, Fantom, Optimism, Polygon, BNBChain and Avalanche networks. According to data shared by OKX, the exchange has $5.84 billion in crypto assets on the Bitcoin, Ethereum, Polygon, Arbitrum, TRON and Avalanche blockchains. Huobi exchange has $3.3 billion in 8 different blockchains, while KuCoin has $2.65 billion, Bitfinex $8.23 billion, and Deribit exchange $1.46 billion.
Bybit, which announced its Proof of Reserves a little later than other exchanges, has a total reserve of 1.89 billion dollars.
What is Proof Of Reserve?
Proof of Reserve, or Proof of Reserve, is the idea that crypto custodians or cryptocurrency exchanges should publicly audit the reserves they claim to hold. In line with this idea, companies should match their user balances with a financial asset that they can convert into liquidity as proof of their liabilities. For example, Proof of Reserve + Proof of Liability = Proof of Solvency. We can exemplify this with the data shared by Binance. For example, On-Chain Reserves are 582,485 BTC, and Customer Net Balance is 575,742 BTC, so Binance exchange has more BTC than customers have invested in BTC. This shows proof of the company’s solvency.
Move from CMC and CoinGecko
Cryptocurrency price monitoring sites CoinMarketCap and CoinGecko have also introduced a feature where exchange reserves can be tracked to increase transparency for crypto investors. Users who are curious about the reserves of the exchanges will be able to instantly follow the reserves of the exchanges via CoinMarketCap or CoinGecko sites. CoinMarketCap provides proof-of-reserve data through Nansen, DefiLlama, and the exchanges’ own websites. Thanks to this feature, the platform provides information about the types of tokens in which the reserves are held, the addresses, balance and value of the assets in the wallets.
Jesse Powell Objected
Exchanges share their proof of reserve to gain confidence from investors and users. But Kraken CEO Jesse Powell disagrees. According to Jesse Powell, this doesn’t make any sense if exchanges don’t specify their obligations when disclosing evidence of reserve. According to Powell, complete proof of reserve must include the sum of customer obligations and proof of user-verifiable encryption that shows each account is included in the total, along with signatures proving the custodian’s control over the wallets. Binance CEO CZ did not respond to these statements made by Jesse Powell on his Twitter account. In his response, CZ stated that third-party auditors will soon be involved to audit the exchange’s proof-of-reserve data.
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