Binance’s “Proof Of Reserves” Is Meaningless, Claims Kraken CEO
It has now been a couple of weeks since the infamous FTX collapse, where the firm faced a liquidity problem and stopped processing withdrawals due to its inability to meet the demand from investors and end users. Post this, it has been observed that several other crypto companies are trying to be more transparent with their users.
Binance’s new initiative
Binance, a cryptocurrency exchange, has unveiled a new website explaining 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 has on behalf of its clients. It is an independent audit carried out by a third party.
Binance currently has a reserve ratio of 101%. This means that the company has enough bitcoins to cover the balance of all users. Binance started by sharing wallet addresses for billions of dollars worth of cryptoassets. The company demonstrated with this action that it actually owns a significant asset base and is capable of handling a significant volume of withdrawals.
Move towards transparency or pointless effort?
With its proof-of-reserves, Binance aimed to establish a standard for the sector. This approach, according to Kraken CEO and co-founder Jesse Powell, is “pointless”.
He claims this because, according to him, stock exchanges do not take liabilities into account. Powell argues that for a proof-of-reserve audit to be complete, it must include the sum 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 went on to say that the goal of being fully transparent was to find out if an exchange had MORE cryptocurrency in its possession than it owed its customers.
CZ reacts
In response to Jesse’s comment, CZ pointed out that it was in crypto that exchange owners publicly called each other out, and he believed that this was beneficial for a more positive crypto atmosphere.
