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Can Proof-of-Reserves Prevent Future Crypto Exchange Collapses? • londonbusinessblog.com

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Some cryptos exchanges are rushing to publish proof-of-reserves in an apparent effort to reassure investors that their funds are safe if fellow exchange FTX melts.

Proof of reserves (PoR) are independent third-party audits that aim to provide transparency and evidence that a custodian holds on behalf of its clients the assets it claims to hold. Accountants then aggregate balances into something called a . is called Merkle treewhich entails all customer balances.

FTX exploded this week after a CoinDesk Report which revealed that a June 30 balance sheet of its affiliate trading company, Alameda Research, consisted largely of FTX’s proprietary token, FTT. All of this could have been prevented with PoR Sergey Nazarov, co-founder of Chain linksaid to londonbusinessblog.com.

“There was a balance problem and it became known to many depositors at once,” Nazarov said. “And because it was a surprise, there was a bank run that led to insolvency.”

But imagine if depositors knew from the beginning what the balance sheets of FTX and Alameda Research were.

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