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After the collapse of crypto giant FTX, crypto exchanges are rushing to audit their reserves under the influence of CZ. CEO of Binance first floated the idea of Proof-Of-Reserves. However, Grayscale a digital asset investment firm cited security concerns and has refused to reveal its on-chain proof of reserves.
Grayscale’s Security Concerns
On Friday afternoon, Grayscale notified on Twitter that, due to security concerns, they do not make any on-chain wallet information or confirmation information publicly available; whether it’s through a cryptographic Proof-of-Reserve or other advanced cryptographic accounting procedure.
The firm admitted that some investors would be disappointed by its decision to keep its reserve information confidential. And that they were aware of the fact that, after FTX’s bankruptcy last week, crypto exchanges are currently pressured to provide more details about their reserves.
Read More: Crypto Exchanges Rush To Provide Proof-of-Reserves Following FTX Crisis
Grayscale further stated that,
“But panic sparked by others is not a good enough reason to circumvent complex security arrangements that have kept our investors’ assets safe for years”
On Thursday, Grayscale’s Bitcoin Trust (GBTC) hit a record low, as did its ETHE product. The firm’s parent company, Digital Currency Group, is also feeling the heat due to having sizeable exposure to the now-bankrupt FTX exchange. Genesis, another entity affiliated with Grayscale recently halted customer withdrawals in wake of the FTX collapse.
Read More: Genesis Suspends Customer Withdrawals
[NEW TODAY] Due to recent events, investors are understandably inquiring deeper into their crypto investments. In this thread we’ve compiled additional information about the safety and security of the assets held by our digital asset products. https://t.co/MvTfUoK4o6 🧵
— Grayscale (@Grayscale) November 18, 2022
Is Proof-Of-Reserves The Best Solution?
Proof-of-Reserves is an auditing technique used to confirm assets on hand. It’s not something new as many suppose it to be, as crypto giants like Paxos & BitMEX have been using it even before the FTX fiasco.
However, it was CZ who brought it to light during the ongoing drama surrounding the Binance-FTX deal. Soon after, Binance started disclosing its reserves on Twitter for public view. Following this, many other crypto exchanges viz. Crypto.com & Huobi disclosed partial reserves to bring transparency to the sector.
But, in light of suspicious on-chain activities by these exchanges — primarily after disclosing their reserves — CZ warned investors to stay away from them.
Read More: Are Crypto Exchanges Faking Proof Of Reserves?
On other hand, Sumit Gupta, the founder of Indian crypto exchange CoinDCX, argues that proof of reserve provides only one side of the story and it also needs “proof of liabilities” to make it complete.
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