Binance Lacks Transparency in Proof of Reserves, Says Kraken CEO

Key Insights

• Binance introduces Proof of Reserves for better transparency
• Kraken CEO Jesse Powell challenges Binance’s Proof of Reserves
• Changpeng Zhao, Binance CEO, says such challenges are healthy for the crypto community

Jesse Powell, the CEO of Kraken Exchange, recently condemned the Proof of Reserves of Binance because it lacked the Proof of Liabilities. The incident followed FTX’s crash, where FTX loaned a significant part of its customer’s assets in their bankruptcy filings. Since then, the Proof of Reserves came as an attempt to convince users about transparency in the market. 

Binance’s Proof of Reserves

Binance was one of the first crypto exchange platforms to publish their Proof of Reserves, with several other crypto firms following the same. While earlier Proof of Reserves was merely balancing cold wallets, the company tried to set a benchmark for the industry. Under the company’s Merkle Tree Proof of Reserves, which had cryptographic evidence, the company sought greater transparency which previous crypto firms failed to do. However, according to Jesse Powell’s statement, it seems there’s a lot one can critique. 

According to Powell, Binance’s Proof of Reserves was nothing but an “Intentional misinterpretation” or simply “ignorance.” The Kraken CEO also stated such Proof of Reserves only indicated finding out whether Binance had more crypto in its custody than what it owes to its customers. Evidently, Binance’s transparency claim, according to Powell, is nothing but a way of reassuring its customers amidst the testing times in the crypto market. 

Changpeng Zhao takes Powell’s Statement Positively

While Jesse Powell’s remark on Twitter stirred the crypto market, Binance’s CEO, Changpeng Zhao, seems to be reasonably calm with it. The CEO addressed the crypto community on Twitter, indicating he considers such questions to develop a healthy environment in the crypto community. Hence, he claims he would prove Binance’s Proof of Reserves as an answer to Powell. He also mentioned how such questions and critiques are “healthy checks” on the crypto exchange platforms. 

However, Powell’s remark on Proof of Reserves was not just a social media tiff between two exchange platforms. Instead, Binance announced introducing third-party auditors soon. The platform is also striving to include more crypto tokens and will soon have its Bitcoin holdings. No wonder the exchange platform seeks to prove itself and maintain customers’ trust.