Binance has published its official response to the FTX liquidity and bankruptcy fiasco, pledging to develop a proof-of-reserve (PoR) mechanism. This will help to ensure that similar problems do not occur in the future.
Binance has announced a new way for users to check how much money the exchange has. This will help people make sure that Binance is keeping their money safe. The only digital currency that can be verified using the Merkle Tree system right now is Bitcoin, but more will be added soon.
The Ethereum Foundation is working on making its proof-of-reserve methods more transparent, which will involve having third-party auditors check its results and implementing a new system called ZK-SNARKs.
Binance announced its intention to use PoR a few days ago and has now released the public details of its wallet addresses and on-chain activity.
Binance CEO Changpeng “CZ” Zhao tweeted about the latest update. Naturally, the Twitter community responded and many with positive comments toward the transparency efforts.
This is a great initiative because it will help reduce environmental pollution. Perhaps a stand-alone page for Proof of Reserves where users can see all the exchange holdings (updated daily) could be on the roadmap for the future.
Binance was one of the first exchanges to start releasing proof of funds, following FTX’s lead. This has become a trend in the industry, with more and more exchanges providing this type of transparency. Bybit, along with other major exchanges such as Bitfinex, OKX, KuCoin and Crypto.com, released its reserve wallet addresses on Nov. 16, a week after the initial incident.
After both Huobi and Gate.io publicized their information, which included loaned funds, they came under fire. Grayscale Investments, a provider of cryptocurrency investment products, said that it is hesitant to release wallet addresses due to security concerns.
On Nov. 10, Chainlink Labs offered PoR auditing services to exchanges across the space, as a solution to the trust issues starting to pop up for centralized exchanges. This move provides a much needed solution to the problem of trust in the exchange industry.
This new feature will help users to see which exchanges are being transparent about their liquidity and reserves.
