Following the liquidity crunch of Sam Bankman-Fried’s FTX exchange that ignited a market collapse, other prominent exchanges are turning to a new proof of reserve system to prevent future reoccurrence.
Nine Exchanges Back Proof of Reserve
The FTX liquidity crunch, which ignited the fifth worst crypto crash, has sparked increased demand for transparency among top exchanges. Exchanges are now turning to proof of funds to regain users’ trust.
In the last 24 hours, nine leading crypto exchanges have announced that they will publish proof-of-their-reserve holdings within the next month. They include Binance, Gate.io, KuCoin, Poloniex, Bitget, Huobi, OKX, Deribit, and Bybit.
Proof of reserve audits is usually conducted by an independent third party to ensure the custodian’s assets are intact and stored as claimed. Binance has introduced Merkle trees to ensure data is processed more efficiently and securely.
The Merkle Tree Proof of Reserve
In crypto, Merkle Tree, or “binary hash tree”, is a system of encoding blockchain data more efficiently and securely. It allows exchanges to store the users’ hash value of assets for each user in “leaf nodes.”
A third party then audits the leaf nodes in the Merkle Tree. Binance has announced its own Merkle tree, while Gate.io has announced that it will make its Merkle Tree Proof of Reserves solution open source.
On the Flipside
FTX, which had no proof of fund before its liquidity crisis, is looking at a potential partnership with Justin Sun to revive the crypto exchange.
Why You Should Care
The Merkle Tree certificate to be published will ensure exchanges are transparent, an important step in establishing trust in the crypto industry.
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