Key notes
- Major exchanges like Kucoin, Okx and Kraken are now competing for the transparency of the audit after the FTX crisis.
- Instantanesses of a punctual reserve cannot detect the out chain or the debt of companies that could go bankrupt exchanges.
- Cryptographic verification represents the progress of the industry, but users must consider POR as a starting point for reasonable diligence.
In the crypto world, confidence is everything, whether you like it or not. Recent announcements of proofs of reserve (POR) exchanges like Kucoin and Coinex on July 10 and OKX on July 9, coupled with reports during pioneers like Kraken, report a deep change in industry.
This wave of transparency is a direct response to the confidence broken by FTX’s catastrophic collapse, forcing a central question: has the crypto really changed? The answer is a complex “yes” because the adoption of POR is a monumental leap in past opacity, although this is not a miracle solution, and some eminent figures have even qualified the practice of “bad idea”.
The moving of the industry in Por was forged by the crisis. Before November 2022, the concept was niche. The fall of FTX, caused by the secret use of billions of customer funds, sparked a crisis of confidence which forced a new standard to exist. Almost all the major exchanges have rushed to implement por programs to prove their solvency and stop a massive exodus of self-care.
How exchanges compete in transparency
What started as the management of the crisis has transformed into a competitive battlefield where exchanges compete for the confidence of users by presenting the rigor of their audits. This has led to a fragmented landscape where “proof” can mean different things.
However, it is essential to understand what a por audit does not do. It is a closely targeted tool, not a complete guarantee of the health of an exchange. Audits are punctual snapshots and not complete financial audits. They do not reveal anything about liabilities outside the potentially massive chain, such as business debt, which could still bankrupt a business. This can create an “illusion of precision”, where a healthy reserve report diverts attention from other critical risks.
The crypto has undeniably changed for the best. The ability to cryptographically check the reserves is a massive improvement. However, Por remains an imperfect tool. Users must deal with these reports as a starting point for reasonable diligence, and not as a conclusion, and remember that self-care portfolios are the only way to really eliminate the risk of counterpart.
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