The idea was that if exchanges proved their total user deposits, i.e., their total liabilities, along with their ownership of an equivalent amount of assets, i.e, proof-of-assets, then it would prove their solvency. In 2013, discussions began on how exchanges could prove the total size of their user deposits. It was later revealed that the transaction may have been misleading since the transferred assets may not have been moved from a cold wallet. Gox was one of the first exchanges to provide proof of solvency by transferring 424,242 BTC from a cold wallet to a pre-announced Mt. Proving solvency through balance lists and Merkle trees He also suggested new techniques for centralized exchanges to achieve trustlessness involving zero-knowledge Succinct Non-Interactive Argument of Knowledge (ZK-SNARKs) and other advanced technologies.īinance, Coinbase, and Kraken, along with a16z general partner and former Coinbase CTO Balaji Srinivasan, contributed to the post. 19, Ethereum co-founder Vitalik Buterin analyzed the cryptographic methods deployed so far by exchanges to become trustless, including the limitations of such methods. These events brought about a wave of urgency for centralized exchanges to provide reliable proof that they hold more assets than liabilities. Most investors have finally realized the importance of owning the keys to their digital assets and have moved record volumes of tokens from exchanges to non-custodial wallets. The collapse of FTX has severely eroded user trust in centralized crypto exchanges.
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