In a season of growing transparency within Web3 following the FTX collapse, Singapore-based decentralized finance (DeFi) services firm Cake DeFi has unravelled its proof of reserves via the cryptographically audited Merkle tree method.
Cake DeFi informed users that they can independently verify both assets and liabilities through its websites.
It is instructive to note that the Merkle tree method has now become infamous among exchanges and crypto firms in rolling out their proof of reserves. It was developed in 1979 by Ralph Merkle.
This method of verification helps to inform the general public that an exchange has sufficient reserves that claims to have without disclosing the entire cryptocurrency being held for the safety of users.
However, users can now ascertain their assets as well as the company’s liabilities in the newly rolled-out feature that enables the members of the public to access its Merkle tree proof of reserves.
Equally, Cake DeFi stated that it would enable users to see how yields are generated with real-time on-chain data as regards customer funds.
Scepticisms Over Merkle Tree-based PoRs
While several crypto firms and exchanges have adopted Merkle tree-based Proof of Reserves, it appears scepticism has continued to grow around the method. For instance, Binance’s Merkle-tree PoRs were largely regarded as unreliable.
Nonetheless, leading exchanges like Crypto.com, Bybit, and OKX have all adopted the same method in disclosing their proof of reserves to their users.
In the same, crypto firms like OKX also provided detailed explanations on how users can verify the proof of reserves on their exchanges.
Meanwhile, some crypto firms like Grayscale have refused to publish their proof of reserves, thereby raising huge security concerns that it might be the next company to go bankrupt.
More than any other time, transparency and accountability should be the watchword of every crypto firm or exchange. This will not only embolden users’ trust, but it would prevent a replica of the ugly scenario occasioned by the FTX collapse.
