Grayscale Investments has opted not to provide on-chain proof of reserves or wallet addresses to demonstrate the underlying assets of its cryptocurrency products due to “security concerns.”
Grayscale provided details about the security and storage of its cryptocurrency holdings when responding to investor concerns on Twitter.
The firm stated that all of the cryptocurrency used to back its investment products are kept with Coinbase’s custody service without exposing the wallet addresses.
The investment firm acknowledged that “the preceding point in particular will be a disappointment to some.” However, it said that the panic caused by others is not a “good enough reason to circumvent complex security arrangements that have kept our investors’ assets safe for years.”
In light of FTX’s liquidity crisis and eventual bankruptcy, Grayscale’s decision comes as the result of increasing demands on the crypto industry to incorporate proof of reserves.
Some Twitter users criticized Grayscale’s assertion that its choice to conceal its wallet addresses was surrounded by security concerns. One user commented that even the wallet of Satoshi Nakamoto, the inventor of Bitcoin, remains secure when his wallet addresses are publically known and is highly valuable to hackers.
In a letter that was shared by Grayscale, Coinbase CFO Alesia Haas and Coinbase Custody CEO Aaron Schnarch detailed the holdings of Grayscale’s investment products. They also confirmed that the assets are secure, that each product has its “own on-chain addresses,” and that the digital currency is always owned by “the applicable Grayscale product”.
According to the company, a different legal organization has been established for each of Grayscale’s products, and “laws, regulations, and documents prohibit the digital assets underlying the products from being lent, borrowed, or otherwise encumbered.”
The Grayscale Bitcoin Trust (GBTC), a security that tracks the price of Bitcoin, is the company’s best known product. It also has other products that monitor the prices of other cryptocurrencies, including Ether and Solana.
