Following the crisis and acquisition of FTX, Binance CEO Changpeng Zhao said his exchange will soon start a Proof-of-Reserves audit system to allow verification of its digital asset holdings.
Zhao pledged to implement a Proof-of-Reserve mechanism at Binance to provide full transparency through the use of Merkle Trees which is a data structure used to encode blockchain data more efficiently and securely.
A Proof-of-Reserve audit is ordinarily conducted by an independent third party to ensure the custodian’s assets are owned as claimed.
The Binance CEO’s intention to implement Proof-of-Reserves comes after Binance agreed to buy rival cryptocurrency exchange FTX who’s been rumored to be on the brink of financial collapse despite CEO Sam Bankman-Fried initially dismissing it.
Chainlink CEO Sergey Nazarov expressed his views that a cryptographic-based Proof-of-Reserves mechanism could paint investors with a more clear picture of the solvency situation of a trading venue or financial firm, and is becoming the new industry standard.
The idea of more Proof-of-Reserve audits received near-full backing from the Twitter community, with crypto industry figures weighing in on the move by Binance.
