Zhao reportedly proposed the creation of a Proof-of-Reserve method at Binance in order to provide transparency through the usage of Merkle Trees, according to Cointelegraph.
According to Cointelegraph, Changpeng “CZ” Zhao, CEO of Binance, claimed that his exchange intends to start a Proof-of-Reserves audit system for enabling verification of its digital asset holdings following the liquidity problem and the acquisition of cryptocurrency exchange FTX.
According to Cointelegraph, Zhao suggested the adoption of a Proof-of-Reserve system at Binance in a post from November 8, 2022, since it would increase transparency by utilizing Merkle Trees, a data structure for encapsulating blockchain data. According to reports, a Proof-of-Reserve audit is often carried out by a neutral third party to verify that the assets of the custodian are indeed owned as stated.
According to information provided by Cointelegraph, Zhao’s decision to launch Proof-of-Reserves follows November 8, 2022, the signing of the deal by Binance to acquire the competing cryptocurrency exchange FTX. Even though Sam Bankman-Fried, CEO of FTX, first denied the allegations, it is thought that FTX is experiencing financial difficulty. On November 8, 2022, Chainlink CEO Sergey Nazarov tweeted his opinions on how a Proof-of-Reserves system with a cryptographic focus may inform investors about the financial institution or trading venue’s solvency.
“It is evident that the new industry standard for establishing the solvency of trading venues and financial institutions uses cryptography. Proof of Reserves is an excellent illustration of a cryptographically assured financial system that originates in cryptocurrency and then spreads to traditional banking, according to Nazarov.
Additionally, Cointelegraph pointed out that cryptocurrency exchange Kraken has been using a cryptographic accounting process since February 2022 to let consumers check the balances of their tokens. Cryptocurrency exchange OKX also announced the launch of a Merkle tree-based Proof-of-Reserves audit mechanism in a post on November 8, 2022.
