Chainlink Offers Proof of Reserve Service for Cryptocurrency Exchanges
On November 10, Chainlink Labs presented its Proof of Reserve solution as a remedy for potential confidence difficulties in the cryptocurrency exchange business. In a series of tweets, Chainlink Labs posed the question, “Will cryptocurrency exchanges continue to make the same errors as the conventional banking sector? Or will a fairer system spring up? ”
In response, it provided its Proof of Reserve (PoR) solution, which it described as suitable for “validating centralized crypto exchange asset holdings, off-chain bank account deposits, cross-chain assets, real-world asset holdings, and so much more.”
Due to a liquidity problem at the world’s second-largest cryptocurrency exchange, FTX, the cryptocurrency market has been in rapid decline for the last several days. The platform has been unable to handle transactions in a timely way, causing widespread concern across the cryptocurrency market.
In response to these recurring challenges, the cryptocurrency community has begun to consider potential solutions, one of which is for clients to demand that every cryptocurrency exchange they use give Proof of Reserve (PoR). Proof of Reserve (PoR) is a protocol that enables customers to evaluate the deposits of cryptocurrency exchanges in real-time. Several crypto exchanges have already adopted Proof of Reserve (PoR), and CZ of Binance argues that all crypto exchanges should start providing this functionality.
However, certain cryptocurrency exchanges have stated that the Proof of Reserves mechanism would take weeks or even months to develop. In rebuttal, Chainlink Labs asserted that their product is a ready-to-implement “out-of-the-box” solution for crypto exchanges.
The solution employs Chainlink nodes that are linked to the crypto exchange’s API and vault addresses, as well as a Proof of Reserve (PoR) smart contract. Almost any account on the system may query the agreement to check whether the crypto exchange’s digital assets are equivalent to its liabilities. Chainlink Labs views this as a straightforward answer to the issue of exchange trust.
Nevertheless, not all individuals concur. A Twitter user identified as “BLanka” stated that Binance elected not to adopt Chainlink PoR since “the merkel tree algorithm utilized by chainlink had its native token assigned as the main component, and after simple math we realized that the crypto token wasn’t even required.”