Centralized cryptocurrency exchanges are trying to prove their reserves. Many changes have shown that they will provide proof of retention. This is a method by which users will be able to verify the amount used in the exchange, but it is not necessarily a fee. The move is an attempt to promote greater confidence in the central exchange after the FTX collapse.
Several central crypto exchanges have indicated in the past few days that they will provide proof of deposit, a system in which users will be able to verify the amount of money spent on the platform, but not necessarily their debt. . This is supported by “merkle proof,” a cryptographic tool that helps to create a collection of money in an exchange wallet and creates a verifiable proof on the chain, all without revealing the customer’s personal information. influence.
Trust fell for the central exchange following the collapse of the FTX exchange, which many traders viewed as trustworthy. Its CEO, Sam Bankman-Fried, has not yet announced that it lends money to clients for investing and lending. Much of the current instability stems from FTX’s poor management of customer funds. The exchange used about $10 billion of the $16 billion in customer deposits to fund other activities, according to a WSJ report.
Cryptocurrency Exchanges are desperate to assure users
Binance, which is the largest crypto exchange by daily trading volume, in an effort to make it more transparent, gave details of the security of its crypto wallet, both internally and publicly.
With this data, Nansen, the top data provider, presented a dashboard showing the security of Binance, which is currently more than $60 billion. Other exchanges want to emulate this and are careful to reassure users of their understanding.
The Nansen researchers are currently working on an exchange to publish their backup evidence. Alex Svanevik, CEO of Nansen, said that his team has received requests from businesses asking to publish their testimonials on his platform.
The representatives of the exchange – OKX, Crypto.com, Kucoin and Bybit – have said that they will publish a list of their crypto addresses or implement the proof system of Binance, given serious concerns about support and security. money and centralized exchange. OKX and KuCoin said they plan to split their holdings in the coming weeks. “We are hiring an auditor and we will install Merkle POF as soon as possible,” OKX tweeted.
“Protecting users’ money is KuCoin’s top priority. We will release proof of Merkle tree storage or POF in about a month,” said KuCoin CEO Johnny Lyu. Although this may be a step in the right direction for business understanding, such evidence of retention cannot provide a complete picture of the company’s financial health.
The metric only shows the dollar value of the exchange marked on the addresses provided by the exchange, while the main one may be entirely the customer’s money. It does not show the amount of debt that the exchange may have on its balance sheet, said Martin Lee of Nansen. Therefore, the financial position of the exchange may differ from that given in the proof of deposit.
