BIT Offers Proof Of Solvency Solution
The recent crashing trend for most centralized crypto custodians is brewing fear and doubt in participants’ minds. Some prominent crypto-related platforms such as FTX, Voyager Digital, Celsius Network, and others have recently collapsed. These events have created crises and massive losses in the industry.
With little or no trust left in crypto exchanges, they need to pursue openness and transparency in their proof of solvency. That’s the only move in regaining the lost confidence in the market.
BIT Solution to Proof of Solvency
Over the years, the operations of crypto exchanges cut across several areas, including staking, lending, venture projects, incubation businesses, and others. Also, they generate revenue from trading fees. But most of them find it difficult to show their proof of solvency.
Proof of solvency demonstrates that a crypto exchange controls enough reserve to settle all its customers’ accounts. This means that even in times of distress, customers will not suffer any loss due to locked funds on the exchange.
The need for this proof forms the basis for BIT’s objective to facilitate crypto self-regulation. BIT plans to use both Proof of Reserves and Proof of Liabilities. This will trigger the launch of Merkle Tree proof-of-reserves for its assets and Merkle Tree proof-of-liabilities for validation.
Proof of Reserves (PoR)
BIT is embracing Merkle Tree proof of reserve for transparency. While making plans on getting several jurisdictional licenses, the exchange is also working to have multiple firms for its audit.
Also, BIT has been using Copper, Cobo, Cactus, and other custodians to ensure a more transparent proof of reserves for the exchange.
Proof of Liabilities (PoL)
The complexity of proof of liabilities is greater than that of proof of assets. The disclosure of proof of liabilities is similar to the verification of assets. The exchange could publish all its liabilities, including creditors’ names, account balances, and other details.
How BIT works to Achieve its Proof of Solvency
- Multiple Auditing – BIT plans to engage several models to ensure accuracy in recording liabilities. It will help to improve the security and privacy of the platform.
- Develop Snapshot Tools – The exchange is developing some snapshot tools solely dedicated to its reserves and liabilities. This will help to capture all activity and enhance transparency for users.
- Include Liability Proof – It will include liability proof attributions in its user system to facilitate the validation afterwards.
- Enhance Details of PoR and PoL – The exchange enhances the details of its PoR and PoL. It will develop some tools for generating and validating PoR and PoL.
BIT’s plans for proof of solvency solution is the right move with the growing doubts among customers on exchanges. The combination of PoR and PoL will allow the users to see the exchange’s proof-of-reserve attestations. Hence, they could verify its on-chain to note if there are sufficient assets to back third-party audits of deposits.
Also, users will know when an exchange is rehypothecating assets and if the assets are being used for high-risk transactions.