Kraken’s Powell says Binance Proof-of-Reserve is pointless without liabilities


Former Kraken CEO Jesse Powell criticized Binance’s Proof of Reserve, calling it an “ignorant or intentional misrepresentation.”

Powell argued that the Merkle Tree was pointless if there were no external auditors to ensure that the exchange did not include accounts with negative balances.  He added that “the statement of assets is pointless without liabilities.”

The whole point of this is to understand whether an exchange has more crypto in its custody than it owes to clients. Putting a hash on a row ID is worthless without everything else.

What is missing in Binance Proof-of-Reserve?

Popular crypto investor Vinny Lingham tweeted on Nov. 27 that exchanges should publish their Proof-of-Liabilities alongside their Proof-of-Reserves. According to him, some exchanges could have liabilities beyond their deposits.

Meanwhile, James Lavish, the author of The Informationist newsletter, wrote that Powell’s view required third-party auditors, which means trusting human sources of information. According to Lavish, previous trusts in such parties have not turned out well for the community.

He referenced how several parties involved with FTX said it was safe and solvent but collapsed.

CZ responds

Binance CEO Changpeng Zhao has since responded to Powell’s view. According to him, Binance has plans to involve third-party auditors later on, and the exchange proof of reserves does not include negative balances.

He added that this was the first time he saw the term “negative balance” and welcomed all questions and checks.

CZ revealed on Nov. 28 that Binance was undergoing the Proof-of-Reserve audit. He said the exchange was ordered to send a specific amount to itself to prove that it controls the wallet.

While some people commended CZ’s response, others criticized his “hypocrisy” for disabling public comments from the tweet despite asking for questions and checks.

Following the collapse of FTX, the need for exchanges to prove their solvency has led to an emphasis on Merkle Tree’s proof of reserves.

Posted In: , Exchanges

Read our latest Market Report


Source link

What is your reaction?

In Love
Not Sure

You may also like

Comments are closed.

More in:Crypto