Crypto exchange Giottus to publish proof of reserves

Chennai-based crypto exchange Giottus has announced that it will publish proof of reserves (PoR) to allay any concerns over misuse of customer assets. After the collapse of FTX, world’s second largest crypto exchange until a few days ago, and the alleged misuse of customer assets worth $10 billion by CEO Sam Bankman-Fried, several crypto exchanges have announced plans to publish their PoR.  

FTX’s CEO has been accused of misusing customers’ crypto assets to fund sister trading firm Alameda Research, according to a WSJ report.  

Last week, world’s largest crypto exchange Binance published its PoR, according to which it is holding assets worth more than $69 billion.  

PoR is an independent audit conducted by a third party on behalf of a crypto exchange. The auditor looks into the assets in the book held by the exchange on behalf of its customers and matches them with the actual reserves. For this, they use a technique called Merkle Tree, a mathematical data structure that encrypts blockchain data securely.  

Most crypto exchanges store information about their customers’ crypto assets in a distributed ledger.  In Merkle Tree technique, the auditor takes data of all the customer’s assets in the form of a Merkle Tree to summarise all the transactions in a block. After this, something called a Merkle Root is derived to validate the information of balance on the Merkle Tree. This information is then verified on the public blockchain where the assets are held.  

Using this technique, auditors can tell if the customer’s assets are missing from the reserves.   

“It is high time that all exchanges divulged proof of reserves and that this is the best point for regulators to make proof of reserve declaration mandatory as part of compliance filings,” Vikram Subburaj, CEO of Giottus said in a statement.  

Last week, Bianance CEO Changpeng Zhao also said, in a Twitter post, that all crypto exchanges should do merkle-tree proof-of-reserves. “Binance will start to do proof-of-reserves soon. Full transparency,” Zhao added.