Is Proof of Reserves The Key to Renewed Trust in Crypto?


The devastating collapse of FTX has torn through the cryptocurrency world. Eroding not only a plethora of platforms but the very perception of the market. But, is Proof of Reserves the key to a renewed trust in crypto?

With so many entities leaning into proof of reserves, could it be the effort in transparency the market needs? Regardless of the answer, the road ahead is a long one, and regaining customers lost trust will certainly not be an easy task.

Source: Brookings Institution

Proof of Reserves is the Hopeful Starting Point

FTX was one of the most reliable crypto trading platforms in the world. Yet, seemingly overnight it experienced a fall unlike any other. Potentially costing customers billions, it wasn’t just another bankrupt business. It was a meteoric strike to the very foundational trust in cryptocurrency.

With the company’s collapse now somewhat in the rearview mirror, the industry is attempting to bounce back. Subsequently, Proof of Reserves has been the first step for many in this pursuit. Seeing platforms leaning into the act to improve their perception and transparency, with consumers.

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Proof of Reserves, or PoR, is an auditing practice that works to assure customers of an appropriate asset balance. Defined well by Blockworks as using, “cryptographic proofs and public wallet address ownership verification in combination with periodic third-party audits to publicly attest that a centralized platform holds enough asset to match user deposits.”

Proof of Reserves Alone Isn’t the Answer

The act is an appropriate first step in showcasing to current, and future, consumers that their assets are protected. Conversely, although it isn’t as clear as non-custodial platforms, it is certainly a starting point that is necessary during a time like this.

However, PoR can still give a false sense of trust. As the audits disclose proof of assets but don’t make clear the platform’s liabilities. Allowing them to, potentially, withhold true risk, while appearing self-regulating.

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Source: PYMNTS.com

In the aftermath of the FTX fallout, PoRs have been a preemptive measure by platforms like Ledn, Kraken, Crypto.com, and Binance. Moreover, it is hoped that this kind of self-regulation could be vital to pushing the crypto market out of the darkness of the FTX collapse.

Proof of Reserves is the first step to a renewed trust in crypto. But it is certainly not the singular answer. With what was lost by the FTX scandal, customers are rightfully timid. However, these efforts will- in time- provide a safer, more trustworthy ecosystem.