Exchange Proof of Reserves: What It Means & Who is Doing It?!

The collapse of FTX and Alameda research Has left crypto holders wondering what Other exchanges might be doing with Their customers coins and tokens behind The scenes the call for transparency by The crypto Community has been answered By most major cryptocurrency exchanges Which have published proofs of their Crypto reserves over the last two weeks Today I'm going to explain what proof of Reserves means scrutinize the crypto Reserves of some of these exchanges and Examine whether decentralized exchanges Will take over as a result Ftx's Shenanigans have inevitably led to Questions over the reliability and Trustworthiness of other exchanges and Rightly so FTX secretly sent billions of Dollars of its users cryptocurrency to Prop up its sister trading firm Alameda Research this is why FTX couldn't Process all the crypto withdrawal Requests coming from its users and Ultimately why the exchange had to file For bankruptcy Oddly enough it was binance CEO Chang Peng Zhao or CZ who proposed a solution To the crypto community's collapse in Trust I say oddly because cz's tweet That binance would be dumping its ftt is One of the catalysts that led to FTX and Alameda's collapse on the 8th of November CZ tweeted quote all crypto Exchanges should do Merkle tree proof of

Reserves Banks run on fractional Reserves crypto exchanges should not Binance will start to do proof of Reserve soon full transparency So for those unfamiliar proof of Reserves or por essentially involves Taking a cryptographic snapshot of the Coins and tokens held by a Cryptocurrency exchange now it's Important to note that por is supposed To be done with the help of an Independent third party or protocol in This case it looks like most Cryptocurrency exchanges have been Working with blockchain analytics Platform nanson for their pors I'll Leave a link to nanson's exchange Holding page in the description if You're interested Now another thing that's important to Note is that por is also supposed to Include the liabilities of a Cryptocurrency Exchange In this context liabilities means that Coins and tokens and exchange is holding On behalf of its users obviously these Coins and tokens don't technically count As an exchange's assets If you watched our recent video about Ftx's bankruptcy filing you'll know that Both FTX us and FTX International didn't Count their users crypto as liabilities On their balance sheets this basically Made it look like both had enough crypto

On hand to meet withdrawal demand when They really didn't now the only Exchanges that have included liabilities In their proof of reserves so far have Been Kraken which actually began doing Por back in February gate dot IO which Uses the same accounting firm as Kraken Armanino and okx which apparently Reported its own liabilities without an Account firm funnily enough coinbase has Not provided por for assets or Liabilities coinbase CEO Emily Choi Explained to coindesk that this is Because coinbase is regularly audited as A publicly traded company so its balance Sheet is already fully available I'll leave a link to it in the Description if you're interested and Before I go on I will caution that even If an exchange has done thorough por for Both its assets and liabilities there is No guarantee that your crypto is safe on That Exchange This is simply because you can never Know for sure that the individual or Institution that crunched the numbers is Being honest the only way to guarantee The safety of your cryptocurrency is to Keep your coins and tokens in your own Personal non-custodial wallet It's also the only way to guarantee your Financial freedom because having Millions in the bank means nothing if You don't have the ability to spend that

Money when and how you want seriously Guys I can't stress this enough Be sure to check out my recent video About how to keep your crypto safe it Too will be in the description now the First por I want to analyze comes from Binance which was of course after Kraken The first exchange to provide por if I Had my tinfile hat on I'd tell you that Binance led the charge for por to Further squeeze its competitors then Again other exchanges probably wanted to Do por to increase user confidence in Any case the top assets on binance's Balance sheet are as follows 31 in the busd stable coin 22 in the Usdt stablecoin 13 in BTC just under 10 In BNB 8 in eth and the remaining 16 or So percent in other cryptocurrencies Grand total 67 billion dollars now this Would be amazing were not for the fact That binance has yet to publish proof of Liabilities specifically of user Deposits with an estimated 30 million Users it's very likely that binance's Liabilities are very large and likely on Par with its assets as with other Exchanges that have revealed their Liabilities that said in a Twitter Spaces discussion CZ explained the Binance has no liabilities this doesn't Make much sense given that the exchange Obviously holds the coins and tokens of Many of its users this is admittedly

Concerning but binance should be Publishing its liabilities soon more About that later in the interim we're Likely to see no shortage of hit pieces Such as this one from Bloomberg which Took issue with the fact that around 40 Percent of binance's reserves are held In its own branded assets namely busd And BNB CZ called the article fake news and Rightfully so to some extent that's Because even though busd is branded as Binance's stablecoin it's actually Issued by paxos a heavily regulated Stablecoin issuer based in the United States paxos actually seems to be the Most regulated stablecoin issuer of them All which theoretically makes busd the Safest stablecoin Binance's Holdings of usdt are more Concerning though tether has already Been under extreme scrutiny from U.S Regulators for years Given that Alameda research was the Largest recipient of all the usdt Ever Issued I suspect that this scrutiny will Soon return and possibly with even more Intensity don't even get me started About all the pending stablecoin Regulations either It's a similar story with BNB too if you Watched our video about BNB you'll know That it was created by binance way back In 2017 when it was known as binance

Coin BNB became independent of binance Earlier this year and rebranded as build And build but bnb's ecosystem is still Dependent on binance If you want more of an overview of Binance as an exchange then you can Check out our review over here Anyways the second por I want to analyze Comes from crypto.com which was the Second exchange to release its por after Binance if I recall correctly crypto.com Was planning on releasing its por closer To the end of the month but rushed to Release an initial por after questions Arose about the exchange's solvency These questions arose because of the Announcement by crypto.com that it was Pausing deposits and withdrawals of usdt And usdc on the Solana blockchain what's Strange is that this is exactly what Binance okx and other exchanges did Shortly afterwards yet there were no Concerns there in any case the top Assets on crypto.com's balance sheet are As follows 25 in BTC 22 in usdc 19 in Ship 11 in eth just under four percent In usdt and around 18 in other Cryptocurrencies grand total three Billion note crypto.com claimed in its Por release that it has more crypto Elsewhere like binance crypto.com has Yet to publish proof of its liabilities These liabilities are likely to be even Larger than finances given that

Crypto.com claims to have over 50 Million users this certainly begs the Question of why there's such a large Difference between the assets held by Binance and by crypto.com The answer seems to be on chain Shortly after crypto.com released its Por it was found that the exchange had Transferred 320 000 eth worth over 400 million dollars To gate.io in late October which was Returned a few days later Crypto.com CEO Chris marzolek claimed The transfer was just a mistake it's Safe to say that the crypto Community Wasn't convinced because Chris had to Hold an emergency AMA to clear up the Confusion Now I have yet to watch that ama but it Seems it was enough to calm crypto.com's Holders since the exchange's Kronos coin Pumped shortly afterwards When it comes to crypto.com's actual Assets its balance sheet is definitely a Mixed bag having BTC as its largest Holding is a bit risky giving all the Crypto Market volatility having almost All your stable coin Holdings in circles Usdc is likewise unwise in my opinion I Suppose it reveals which entities Crypto.com is close to more about the Company taking over cryptocurrency using The link in the description I digress Now not surprisingly the news that

Crypto.com holds a fifth of its asset Reserves in Shiba inu's shib token made The crypto headlines that's because shib Is a meme coin whose value is Fundamentally reliant on retail Speculation which has been quickly Sucked out of the crypto Market as it Crashes Chris explained in the Aforementioned AMA that quote it so Happens that last year Doge and ship Were two extremely hot meme coins and People bought a lot and they are holding It they didn't sell it we have no Control over what you guys buy you buy It we will store it we will keep it safe Now this actually makes a lot of sense But it won't be confirmed until Crypto.com publishes its liabilities if I understand correctly this will be done In the next few weeks as the blog post Announcing crypto.com's assets por notes That it will confirm a quote full One-to-one reserve of all customer Assets Anyhow the third por I want to analyze Comes from okx which you'll recall Included liabilities albeit Self-reported ones okx released its Proof of reserves just a few days ago But what's annoying is that the proof of Reserves on its website doesn't tell us All that much that's because it only Gives us info about okx's BTC eth and Usdt holdings okx claims to hold around

108 000 BTC against 105 000 BTC of user Holdings for eth it's one million fifty Thousand against one million twenty five Thousand and for usdt it's 3 billion 60 Million against three billion 16 million The main takeaway is that okx appears to Have more crypto on hand than the crypto That's been deposited by its users now This is excellent but again it doesn't Include the other dozens of Cryptocurrencies the exchange offers It's also not clear Which accounting Firm was involved if any unfortunately Nanson doesn't have any additional data Either According to nanson the top assets on Okx's balance sheet are as follows Almost 50 percent in usdt 25 in BTC 20 In eth 5 in usdc and just a fraction of A percentage point for all the other Cryptocurrencies The Exchange offers Okx's blog post announcing its proof of Reserves notes that it will publish Asset and liability information about The other cryptocurrencies it holds soon To be exact The Exchange said that the Self-audit feature will become available For all these other cryptocurrencies This is a small but significant detail Because self-auditing means that okx Users can cryptographically verify that The exchange holds the coins and tokens It claims to if I'm not mistaken Kraken Bitmex and gate.io are the only other

Crypto exchanges that currently offer This feature to my understanding binance Crypto.com and others will be providing This same level of transparency over the Coming weeks the only reason they don't Offer the self-audit feature already is Because most of the info that's been Released so far is the wallet addresses Not the cryptographic proofs of Reserve Oh and in case you're wondering the Grand total of okx's crypto Holdings is Around 6 billion dollars with around 20 Million users it sounds like okx is well Capitalized but as with all the other Exchanges so far the devil is truly in The detail Although holding most of your reserves In stable coins is safe it's a lot less Safe when almost all these stablecoin Reserves are in one specifically tethers Usdt as I mentioned earlier tether is Facing its fair share of regulatory Scrutiny from the United States and Other countries that is a bit risky in My Even so OK X's incomplete reserves paint A fairly promising picture the remaining 50 is in BTC eth and usdc and all three Are pristine collateral by crypto Standards let's just hope that okx Doesn't reveal that it's holding a Massive chunk of its reserves in some Meme coin later down the line now if you Want to do a bit more due diligence on

Okx then we also have a review of that As well and I will leave that in the Description for you folks Anywho the fourth and final por I want To analyze comes from kucoin which Released all its wallet addresses Earlier this month and is working on a Cryptographic por with a third-party Auditor the blog posts announcing Kucoin's wallets notes the cryptographic POR will be published in early December In any case the top assets on kucoin's Balance sheet are as follows 32 in usdt just under 18 in KCs 11 in BTC around eight percent in each around Seven percent in usdc and 24 in Everything else grand total 2.5 billion Dollars of assets to back whatever Liabilities are coming from kucoin's 20 Million users like okx and crypto.com Kucoin has almost all of its stablecoin Eggs in one basket in this case usdt This seems to be the standard for most Crypto exchanges that aren't based in The United States and it underscores how Much damage would be done to the crypto Ecosystem if tether is ever taken down Similarly to binance kucoin holds a Substantial chunk of its reserves in its Own KCs token in contrast to binance's BMB kucoin's KCs has limited exchange Support and very low liquidity however The KCs chain also doesn't have nearly The same amount of activity and adoption

As BNB this means that the KCs token's Price action is entirely dependent on Kucoin if the exchange ever were to Experience any issues kcs's price would Plummet in a worst case scenario this Could wipe out almost 20 percent of Kucoin's crypto reserves now the Remainder of kucoin's reserves are Interesting yet expected barely a fifth In BTC and eth and almost a quarter in Mid to small Gap altcoins This makes sense because kucoin is one Of the most popular exchanges to go to For Mid to small Capital coins and the Ones it list tend to be pretty good as Well Now I should also note that kucoin's Blog post about its wallet addresses Also states that it has more reserves Than it has reported so far the fact That kucoin will be providing Cryptographic por also suggests that the Exchange will be providing the liability Side of its crypto balance sheet too This is all well and good but I'll Reiterate that the only way to know for Sure that your cryptocurrency is safe is To keep it in your own personal wallet Only keep what you're actively trading On exchanges otherwise keep everything In a hot or cold wallet and don't say I Didn't warn you That being said if you want an overview Of kucoin more broadly I have a video

For you on that as well top right por Favor So this brings me to the big question And that's whether decentralized Exchanges are destined to take over due To the transparency issues of Centralized exchanges in short yes but It's going to take quite some time for The decks experience to beat the sex Experience For starters there's the trading Experience using a DEX is not nearly as Easy as using a sex for crypto Noobs Dexes also don't provide nearly the same Degree of flexibility to crypto experts The good news is that progress is being Made on both fronts by wallets like Phantom and order book dexes like GMX Then there's the ability to swap between Native cryptocurrencies Sexes Effectively let you trade whatever Cryptocurrency you want whereas most Dexes only allow you to trade between Tokens on a single blockchain this is Not ideal as some trades require Multiple dexes and cross-chain bridges The good news is that there are crypto Projects like Thor chain which make it Possible to swap cryptocurrencies Natively between blockchains these Technologies are still very much in Their infancy but I could see an order Book based cross-chain decks being built By the end of the next bull market and

Finally there's the on and off ramps the Biggest Advantage is that Sexes have Over dexes is arguably their ability to Let users cash out into filthy Fiat Being able to easily get your money in And out of crypto is of Paramount Importance and it's something that dexes Haven't yet managed to do due to all the Regulations involved the good news is That it should become easier to get your Money in and out of crypto once it Becomes more widely held peer-to-peer Crypto marketplaces were and continue to Be something associated with privacy Obsessed cipherbunks but they could Become very common as crypto adoption Increases in some I am confident that Dex's will displace sexes in the coming Years I reckon this will be accelerated By crypto regulations which will only be Enforceable against centralized elements Of the crypto industry the truth is that All centralized elements must be removed For this to be called crypto take a Second to consider that it's the Centralized entities which have Historically caused and continue to Cause all the issues in the crypto Industry it's part of the growing pains And it is in fact something that the Crypto industry should eventually grow Out of otherwise we'll end up with more Of the same after all what FTX and Alameda were doing is no different from

What banks do today the only difference Is that Banks get bailed out by the Central banks when they lose all their Clients money speculating on risky Assets with Leverage The crypto Companies who do this just go under as They should Stronger crypto companies rise to Replace them however until their flaws Are found and they collapse too and with Each iteration the crypto industry moves Closer to its core values because that's All that's left when the greed and gains Are gone it will take time but one day We will no longer have to trust we will Simply verify And that's it for my video today folks But I'm Keen to get your feedback though Do you trust these proof of reserves let Me know down below If you wanted to use any of the Exchanges above I've managed to get Special trading fee discounts of up to 60 on some of them so if you want to Take advantage of that they're linked to In the description below now of course We also get a commission when you do This because it's how we keep the lights On here and we both benefit or you're More than welcome to sign up directly Without our deal and the links to do so Are down below as well just remember Whatever you do don't leave a large Amount of funds on the exchange it is

Not worth the risk [Music]

Coinbase
OUR TAKE

Coinbase is a popular cryptocurrency exchange. It makes it easy to buy, sell, and exchange cryptocurrencies like Bitcoin. Coinbase also has a brokerage service that makes it easy to buy Bitcoin as easily as buying stocks through an online broker. However, Coinbase can be expensive due to the fees it charges and its poor customer service.

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