Following the liquidity crunch and acquirement of cryptocurrency exchange FTX, Binance CEO Changpeng "CZ" Zhao announced that his exchange would launch a Proof-of-Reserves audit system soon to enable validation of its digital asset holdings.

Zhao vowed to enforce a Proof-of-Reserve mechanism at Binance to provide "full transparency" with Merkle Trees — a data model used to encrypt blockchain information more effectively and securely — in a tweet on November 8.

An independent third party typically conducts a Proof-of-Reserve audit to ensure the custodian's assets are purchased as claimed.

The Binance CEO's intention to implement Proof-of-Reserves follows Binance's Nov. 8 agreement to buy rival cryptocurrency exchange FTX, which has been rumored to be on the verge of economic meltdown despite CEO Sam Bankman-Fried at first dismissing the claims.

Chainlink CEO Sergey Nazarov stated in a Nov. 8 tweet that a cryptographic-based Proof-of-Reserves method could provide investors with a clearer picture of a trading venue's or economic firm's solvency situation and is evolving into the new industry norm.

Meanwhile, Kraken has been using its advanced cryptographic accounting procedure to allow users to check their token balances since February 2022.

Cryptocurrency exchange In a Nov. 8 Twitter post, OKX also declared plans to roll out a Merkle tree-based Proof-of-Reserves audit system, which they regard as an important step in constructing baseline trust in the industry.

The concept of more Proof-of-Reserve audits earned near-universal support on Twitter, with crypto industry representatives weighing in on Binance's move.

Anthony Sassano, host of The Daily Gwei podcast, and Erik Voorhees, founder of open-source crypto exchange ShapeShift, both suggested that Proof-of-Reserves is already incorporated into DeFi and automated by smart contracts.

Ryan Selkis, the founder of cryptocurrency market intelligence platform Messari, went even further, asserting that regulators should concentrate their efforts on the industry's more centrally controlled players.

However, not everyone agreed. Antonio Juliano, the founder of the crypto derivatives trading platform dYdX, argued that a Proof-of-Reserves system would not reveal all of the information required to verify an exchange's holdings.

 What are your thoughts on the Binance Proof-of-Reserve pledge? Drop your comments by sharing this article on social media. 

Posted 
Nov 9, 2022
 in 
Crypto News
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