Since the collapse of the FTX cryptocurrency exchange, the notion of proof of reserve has been on the rise. Many exchanges have announced their intention to present reserve proof to the public. Some have even already published their PoRs to reassure users of their solvency. Several crypto players have announced that proof of reserve is a guarantee of trust and that all companies in the sector should develop it. But now a crypto analyst is completely questioning the reliability of this document.
Martin Hiesboeck argues that PoRs are unreliable
Crypto analyst Martin Hiesboeck has indicated that reserve evidence does not guarantee the solvency of a crypto exchange. He explained that they can be subject to manipulation by the actors and be incomplete. He added that they do not take into account at allliabilities and on-chain assets“. In this context, he argues that they are not suitable for verifying the reserves that a cryptocurrency exchange platform has.
Besides the fact that PoRs would be misleading and misleadinghe appears that they do not guarantee that an exchange does not commit wrongdoing, he continued. Indeed, a platform can still use user funds for its own needs, after publishing its PoR. Reports have shown that some CEXs embezzle funds from their clients and put them back just before an audit.
This explains their massive adoption
Martin Hiesboeck explained what he thinks is driving the recent massive adoption of reserve proofs. He stated : “Reserve proof has seen increased adoption and interest in recent weeks due to shaken confidence in centralized exchanges“.
He emphasized:CEX needed a quick and public “emergency response” to restore public and user confidence. This is why the method […] is currently presented as the best means of proving the transparency of a exchange, at least on paper“.
Crypto analyst Martin Hiesboeck argues that PoR absolutely does not prove that a CEX is actually solvent. According to him, what should be prioritized isa system that provides a combination of reserves and liabilities “. He explains that said systemshould include evidence that the operating entities are domiciled in the correct jurisdictions and that any certification has been reviewed by an external audit firm “.
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