By George Ward
The clamor for crypto exchanges to show more transparency has been ongoing over the past few weeks following the ill-fated FTX debacle affecting trading activities. Dubai-based Bybit has joined the league of crypto exchanges pushing for credibility post-FTX.
In an announcement on December 12, the exchange revealed that it had launched its Merkle Tree-based proof-of-reserve platform to ensure customer transparency. Users could verify the company’s holdings and assets in Bybit’s custody with the new initiative.
Bybit stated that the latest feature is open to all users holding funds in trading or funding accounts, including holding crypto shares in its Eran products.
In addition, the Merkle Tree system will allow users to verify Bybit’s wallet ownership, where the assets are in a ratio of 1:1.
While commenting on the launch of the Merkle Tree platform, the CEO of Bybit, Ben Zhou, stated, “The cryptographic system will provide a crypto-based, trustless verification model showing all users evidence of Bybit’s on-chain holdings and liabilities.”
Reports indicate that the Dubai-based exchange is working on boosting its withdrawal system and, at the same time, upgrading its risk management mechanisms. Accordingly, Bybit noted that it is committed to publishing every bit of its Bitcoin and Ether wallets.
Meanwhile, the exchange has already released its reserve wallet addresses since November 16, the same period that the FTX fiasco unfolded.
With users shifting their attention to safeguarding their digital asset funds and making exchanges accountable, many of the top guns in the industry have introduced a similar initiative to boost their transparency ratings.
Binance Leads While Others Follow
The world’s largest crypto exchange, Binance, was the first to allow users to glance at their liquidity reserves through the Merkle Tree system, unveiled two weeks later.
Interestingly, even after releasing part of its internal data for public scrutiny, some observers exposed some inconsistencies with the company’s finances at that time.
Other crypto exchanges that have come under criticism after disclosing their reserves are Huobi and Gate.io. Others, like Grayscale, noted that it would not release its proof of reserves due to security concerns.
Similarly, the CEO of Kraken, Jesse Powell, has slammed the “proof of reserve” trend, saying that it means nothing without adding the sum of client liabilities to the claim.
Despite the efforts of some crypto exchanges to boost their credibility within the digital asset space and reassure users, the move only provides limited insights into most firms’ finances. With most crypto exchanges being privately controlled, this means that they do not need to make an audit or file financial statements with financial regulators.
Some crypto exchanges do not provide any insight into their reserves due to the absence of regulatory enforcement. The FTX implosion might push regulators to force exchanges to publish verifiable proof of reserves.