Reservations About Proof of Reserves
Proof of Reserves has become all the rage in the wake of FTX’s collapse. For instance, just today, Coindesk is out with an article detailing the proof of reserve efforts of OKX.
I’ve previously criticized the crypto community for failing to professionalize their conduct; the proof of reserves push is yet another half-baked and half-assed solution to a problem that is not being adequately addressed.
For anyone who is looking at these and taking some degree of comfort from them, my answer to you is basically this:
Don’t.
What are Proof of Reserves?
First, let us talk about what Proof of Reserves intend to be, or at least, should intend to be.
Exchange Deposits
When you have a crypto exchange in the current market, what happens is that you list a bunch of pairs for trading on the exchange. It might be something like BTC/BUSD or ETH/USDT or MATIC/USDC; note that most of these pairs are crypto asset vs. stablecoin, as this is the usual market standard for how things trade.
Customers can then deposit assets onto the exchange in order to trade them; if you have BTC you could put it in the order book against BUSD, for example, in this case. Or if you had BUSD, the reverse. Point is…
