Crypto exchange Binance launched a new website that explains its proof of reserves system. But why did the company do it and what does it mean? Here’s a breakdown of why the term has been making its rounds lately. What happened?
The popular crypto exchange called FTX collapsed two weeks ago due to a liquidity crisis. As a result, the exchange stopped processing customer and investor withdrawals. Since the fall of FTX led to a lot of mistrust in the crypto community, crypto exchanges, including Binance, started to offer more information around how it handles people’s funds. What are proof of reserves? Proof of Reserves are one way that Binance is offering that transparency to users. It refers to an independent audit completed by a third party to verify the assets that are held in custody for users. Proof of reserves show evidence that Binance has funds that cover “all of our users’ assets 1:1, as well as some reserves,” the company website states. Reserves are cryptocurrencies, or other types of assets that offer liquidity. It tells users that the company could sell off its assets to cover withdrawals if needed, regardless of market conditions. It also shows that Binance has slightly more Bitcoin
BTCUSD,
+0.06%
in the wallets it controls than the amount that is deposited by users. Binance clarified that these numbers do not include corporate holdings, which are kept on a separate ledger. Binance also claims to have zero debt in its capital structure and an emergency fund for extreme cases. How does it work? To show proof of us …