The collapse of FTX has highlighted the need for new standards regarding fund transparency on cryptocurrency exchanges. As a result, Ethereum co-founder Vitalik Buterin published his research to increase investor protection on centralized platforms.
Vitalik Buterin oeuvre pour la transparence des exchanges centralisés (CEX)
Vitalik Buterin and proof of solvency
Since the beginning of 2022, tens of billions of assets evaporated with the fall of centralized companies. In addition, the recent FTX scandal undermines the confidence that investors have placed in these platforms.
👉 Our responses to the events related to the FTX bankruptcy
However, not all centralized exchanges are doomed to crash with their customers’ money. This is, in any case, what Vitalik Buterin, the co-founder of Ethereum, hopes.
The man who needs no introduction recently shared on Twitter the results of his research on “ proof of solvency » :
Having a safe CEX: proof of solvency and beyondhttps://t.co/AKEweYZfj2
Big thanks to @balajis and staff from @coinbase @binance @krakenfx for discussion!
— vitalik.eth (@VitalikButerin) November 19, 2022
“Having a safe CEX: proof of solvency and beyond”
According to its author, proof of solvency is a means allowing greater transparency from exchanges on the storage of their clients’ funds.
This method is not so recent: the premises of proof of solvency date back to 2011 with the exchange Mt.Gox.
At that time, to prove that the Mt.Gox platform owned the bitcoins (BTC) of its customers, a transfer representing all the assets of the platform had been made to a predefined upstream address. The transaction made on the blockchain displayed the amount of cash possessed by the platform.
Today, the means used are no longer so rustic. The Merkle tree method, used by some cryptocurrency exchanges, allows each user to reliably know the balance of their assets on the platform used.
This is notably the technology used by the Kraken exchangefounded in 2011 by its current CEO Jesse Powell.
👉 Portrait of Vitalik Buterin
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In lack of regulation, the Web3 self-regulates
Despite existing techniques, rare were the exchanges showing great transparency. But since the collapse of FTX, the biggest players in the ecosystem are coming together to turn the exception into a standard applicable to the greatest number.
Indeed, in the previously quoted tweet as well as in his article, Vitalik Buterin thanks Coinbase, Binance and Kraken for their contributions and collaboration on the issue of exchange transparency.
On his side, Binance CEO Changpeng Zhao expressed his interest on Twitter by re-sharing Vitalik Buterin’s article:
Vitalik’s new ideas. Working on this.
Just don’t read the title aloud around people (Vitalik wrote it).https://t.co/AtR6KiSx5B
— CZ 🔶 Binance (@cz_binance) November 19, 2022
“Vitalik’s New Ideas. I’m working on it. »
While regulation struggles to apply globally, it is therefore business leaders who act today for the safety of customers.
In addition, there is a good chance that future legislation will be inspired by these standards with a view to regulating the cryptocurrency sector.
However, if only a few individuals manage to change the way exchanges work, we should then look at the dangers that this centralization could have on the future of the sector.
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Sources: Vitalik Buterin’s website
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Always enthusiastic about new technologies, I gradually moved closer to Web3-related activities during the year 2021. Over time, I wanted to add my stone to the building. It was then that I became an editor, with the aim of explaining cryptocurrency-related topics to as many people as possible.
Timothy Bourbotte
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