Ethereum is developing a new proof-of-reserves protocol

As different centralized exchanges scramble to compile proofs or their reserves, with some even creating FUD themselves, Changpeng Zhao – the CEO of Binance announced in a twitter AMA space, that Vitalik Buterin has called him with plans of creating a new proof-of-reserve protocol. The two have agreed on having Binance as the “guinea pig” on which the upcoming protocol will be tested.

Last week’s crypto downturn, caused by one of the largest centralized exchanges (FTX) disclosing a massive liquidity hole and eventually filing for bankruptcy, has triggered a massive wave of withdrawals from exchanges. Even though, the market’s price was directly affected by the FTX fiasco, it seems that users are keener to move their assets off exchanges than selling them and exiting the industry.

Nevertheless, the fear of insufficient liquidity on the exchanges goes on and crypto holders are withdrawing from all major exchanges, with crypto analytics firm Nansen even releasing a public dashboard measuring the outflow of funds. In the meantime, exchanges tried to assert their customers that their funds are safe by showing various wallet addresses, or snapshots of the companies’ holdings.

While these actions caused a calming wave among crypto investors and traders, some proof-of-reserve sparked researcher’s interest. One such exchange was Crypto.com. When released, the data for its reserves showed around 20% of it was in the form of DOGE tokens. The company’s CEO responded to the interest by saying these are customer funds and as such they are being held in the assets chosen by customers. Later, various independent analysists noticed that a few weeks ago, Crypto.com had sent 320,000 ETH to Gate.io. Once again, the CEO of Crypto.com jumped to Twitter to explain. This time not that successfully, he claimed the transaction was accidental and later Gate.io returned all funds.

Meanwhile, a wallet linked to Huobi, was found transferring 10,000 ETH to Binance and OKX wallets, just after releasing its proof-of-reserve snapshot. Today, Crypto.com was accused of withdrawing $80 million worth of USDT from Binance, raising questions such as, what were one exchange’s user funds doing in another exchange, was Crypto.com “farming” with user funds?

The project is expected to be finished in the next couple of weeks according to Changpeng Zhao. The Binance CEO went on to say that currently "everyone is trying to do proof-or-reserve" therefore the best auditing company is busy. Moreover, this auditing company is the one who audited FTX, where a massive liquidity hole of over $8.6 billion was recently discovered.