The “proof of reserves” disclosure tactic by Binance and Crypto.com trading exchanges had won many thumbs-up until Ethereum co-founder Vitalik Buterin joined the debate and exposed its weakness.
They were assuring customers about their solvency and sought to add a secure feeling that “no FTX” will affect their platforms. However, Buterin called the bluff and suggested new options including the creation of cryptographic proofs of on-chain funds to cover investor liabilities in the face of any eventuality calling it safe centralized exchanges (CEX).
Now Binance CEO Chnagpeng Zhao has admitted proof of his reserves model has flaws and he is working on improving his PoR model using Buterin’s tips.
Binance boss CZ tweeted: “Vitalik’s new ideas. Working on this.”
The FTX collapse revealed the urgency of revamping the functioning models of crypto exchanges. Buterin urged all to move beyond “fiat” methods to ensure the stability of crypto exchanges and advocated the use of technologies such as Zero-Knowledge Succinct Non-Interactive Argument of Knowledge.
The best alternative is a system that will not let crypto exchanges withdraw a depositor’s funds without consent.
Meanwhile, bankrupt crypto exchange FTX said on Saturday that it sought court relief to allow the operation of a new global cash management system to make payments to its critical vendors. The court filing sought permission to pay pre-petition claims of up to $9.3 million to critical vendors and up to $17.5 million after the final order.
The FTX and its affiliates filed for bankruptcy on November 11 leaving in the lurch over 1 million customers and investors facing losses running into billions of dollars.
According to John Ray, the new CEO of beleaguered exchange FTX is exploring sales and recasting of units.
