After the FTX crash a few days ago, exchanges are releasing evidence of reserves. However, this action is far from being enough for many experts in the crypto ecosystem!
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A welcome step…
After the FTX failure, exchanges are trying to reassure their customers. The latter are rushing to publish proof of reserves. A commendable action, but not enough for many observers.
A proof of reserve shows the amount of assets that an exchange holds. It is an action in favor of a greater transparency which should help boost investor confidence. A way to demonstrate that, unlike FTX, other CEXs have sufficient assets and liquidity to weather difficult times and bear markets.
This week, Binance, OKX, and Crypto.com presented their proof of reserves. An action that has become mandatory in a climate of mistrust after the fall of FTX.
This transparency, in the very DNA of cryptocurrencies, is welcome. However, for many experts, proof of reserves is a picture at a certain point in time. It is not a complete picture. So this action is not enough.
But that's not enough at all!
For Wayne Trend, CEO of OSL Exchange, this exercise is limited in scope. He says:
Exchanges do not disclose audited fiat reserves, customer and corporate debt, corporate loans, and most other information needed to determine a company’s financial health.
OSL is owned by BC Technology Group, a Hong Kong-based company as QuantumAI. The latter is subject to regular regulation and audit. While these requirements do not prevent some abuses, regular audits, segregation of client assets and regulatory oversight ensure a higher level of investor protection.
Richard Nash, CFO of CoinShares, nonetheless welcomes the proof-of-reserve initiative. He says:
Proof of reserve is not foolproof. It builds trust and transparency, two concepts that have never been more relevant in the cryptocurrency ecosystem than in the past two weeks.
While exchanges have rushed to share evidence of their reserves, none have shared their liabilities or even their debts.
Binance has the largest reserves
Binance, OKX, Deribit, Crypto.com, Kucoin, Huobi, and Bitfinex have all published proof of reserves. Kraken publishes this data semi-annually, most recently on June 30, and is therefore not included here.
Binance has the largest reserves among CEXs. According to data from DefiLlama, the leading cryptocurrency exchange has over $65 billion in reserves. This includes 475.000 BTC, 4,8 million Ether, 17,6 billion USDT, 601 million USDC, 21,7 billion BUSD, and 58 million BNB.
It can be noted that a significant portion, $35 billion, of its reserves corresponds to BUSD and BNB. Most of Binance's assets are logically located on the Binance Smart Chain. Remember that Paxos is the issuer of BUSD and not the exchange itself. 4 networks share Binance's reserves: Bitcoin, BSC, Ethereum and Tron.
What is the situation with other CEXs?
Crypto.com has $2,46 billion in reserves with 25% in BTC. USDT and ETH account for 5% and 18% of this total, respectively.
The exchange came under the spotlight when observers noted that 21% of its reserves were made up of Shiba Inu, the highly volatile memecoin. The Bitcoin and Ethereum networks host these reserves.
OKX, on the other hand, has reserves primarily in the form of stablecoins USDT worth $2,43 billion and USDC worth $195 million. The exchange also has 91.000 BTC in reserve. 62% of its reserves are hosted on Ethereum and 27% on the Bitcoin network. Tron and Arbitrum, at 5% and 3% respectively, round out this distribution. The exchange also uses Polygon, but for a negligible amount.
Bitfinex has $5,06 billion in reserves, of which $3,26 billion is in BTC. Other assets include $1,49 billion in ETH, $88 million in USDT, and $55 million in USDC. The Bitcoin, Ethereum, and Tron networks host these reserves.
Huobi reports $3,11 billion in reserves with 43.200 BTC, 274.000 ETH, 820 million USDC, and 9,7 billion TRX. The majority of assets, 43% to be precise, are on the Ethereum network. Bitcoin 34% and the Tron network 23% host the majority of the rest. The rest are on networks such as Avalanche, Algorand, Solana, and Polygon.
This proof of reserves is an essential first step. They provide an initial overview of the accounts of the various CEXs. However, the latter must go further. After the collapse of FTX, customers expect greater transparency and an overall view of the real state of the finances of these large exchanges.
Article published on November 23, 2022 - 08:56
