Trust, But Verify

As unlikely as it may feel, things will get better as we begin putting distance between cryptocurrency and the effects of the FTX collapse that have dominated headlines this week. In fact, if we look hard enough we can see a silhouette of a silver lining even now. Since FTX was commonly seen as a strong platform, many have begun taken due diligence more seriously, and asking questions where previously none were posed… and it looks like Binance CEO CZ is among the first to the microphone offering up answers.

• Many cryptocurrency exchanges, including Binance, are now racing to publicly prove their solvency as contagion fears spread across the industry. They’re doing this by disclosing their fund reserves.
• On Tuesday, CZ stated on Twitter that “All crypto exchanges should do merkle-tree proof-of-reserves”, going on to announce that Binance would start soon to achieve “full transparency”.
• So far, Deribit, Bybit, OKX, Huobi, KuCoin, Poloniex, Gate.io, and Bitget have all joined Binance in issuing statements with the intent to fully disclose Merkle tree reserve certificates to increase transparency.
• Merkle trees are data structures that allow for third party auditing of asset values.

It’s too soon to say the worst is behind us, but even in such depressing market conditions, there is some good news to be found. Moving forward, exchange transparency will more than likely be the rule, not the exception.