a crypto number exchanges are rushing to release proof of reserves in an apparent attempt to reassure investors their funds are safe as the FTX exchange tanks.
Proofs of Reserve (PoR) are independent third-party audits that are intended to provide transparency and evidence that a custodian owns the assets it claims to own on behalf of its clients. The auditors then aggregate the balances into something called a Merkle tree, which includes all customer balances.
FTX exploded this week following a report from CoinDesk that showed the June 30 balance sheet of its affiliated trading firm, Alameda Research, was largely made up of FTX’s native token, FTT. All of this could have been avoided with PoR, Chainlink co-founder Sergey Nazarov told TechCrunch.
“There was a problem with the balance sheet and many depositors knew about it at once,” Nazarov said. “And as it was a surprise, there was a bank run that led to insolvency.”
But imagine if depositors knew what the balance sheets of FTX and Alameda Research are from the start.