On the 10th of November, Chainlink Labs presented its Proof of Reserve product as a response to potential trust difficulties in the cryptocurrency exchange business. "Will cryptocurrency continue to make the same mistakes as the traditional black-box financial business, Chainlink Labs posed in a tweet thread. Or will a better system be implemented? ”
#Crypto is at a crossroads.
— Chainlink (@chainlink) November 10, 2022
Will crypto continue to repeat the mistakes of the traditional black-box financial industry? Or will a better system emerge?
A better system is possible, & Proof of Reserve is one way #Chainlink is providing the transparency that users demand.
🧵👇
It provided its Proof of Reserve (PoR) product in response to this query, claiming that it may be used 'for confirming centralized exchange asset reserves, off-chain bank account balances, cross-chain collateral, real-world asset reserves, and much more.'
Due to a liquidity problem at FTX, the second-largest cryptocurrency exchange in the world, the cryptocurrency market has been in freefall during the last few days. The exchange's inability to handle withdrawals promptly has caused panic to spread throughout the cryptocurrency market.
Due to these persistent challenges, the crypto community has begun to consider potential solutions. One suggestion made is for users to demand that every exchange they use provide a Proof of Reserve.
Using the Proof of Reserve technology, consumers may instantly check the reserves of crypto exchanges. Proof of Reserve has already been implemented by some exchanges, and according to CZ of Binance, all exchanges ought to now provide this option.
However, some exchanges have stated that the development of a Proof of Reserves mechanism will take weeks or longer.
Chainlink Labs responded by claiming that its product offers a "out-of-the-box" option that exchanges may use right now.
Here, Chainlink PoR verifies off-chain assets and relays the reserve amounts on-chain. pic.twitter.com/ExmEZWiTLA
— Chainlink (@chainlink) November 10, 2022
The product utilizes Chainlink nodes attached to a Proof of Reserve smart contract and Chainlink nodes connected to the exchange's API and vault addresses. Any other account on the network may query the contract to ascertain whether the exchange's crypto assets are equivalent to its liabilities. According to Chainlink Labs, this offers a straightforward answer to the issue of confidence in exchanges.
But not everyone is persuaded. The reason Binance decided against using Chainlink PoR, according to a Twitter user going by the handle "BLanka," was that "the merkel tree algo utilized by chainlink had its token set as the fundamental piece, after some basic math we find the token was not even needed."
