On November 10, Chainlink Labs presented their proof-of-reserve product as a solution to potential trust difficulties in the crypto exchange sector. Chainlink Labs questioned in a tweet thread, “Will crypto continue to repeat the mistakes of the traditional black-box financial industry? Or will a better system emerge?”
In response, it provided its proof-of-reserve (POR) product, which it claims is suitable "for confirming centralised exchange asset reserves, off-chain bank account balances, cross-chain collateral, real-world asset reserves, and much more."
The crypto market has been in freefall over the last two days due to a liquidity problem at the world's second-largest crypto exchange, FTX. The exchange has been unable to process withdrawals in a timely way, causing concern throughout the crypto market.
Following these ongoing issues, the crypto community has begun to discuss solutions, and one solution that has been proposed is for customers to require that every exchange they use offer proof of reserve.
Proof of reserve is a method that enables users to audit the reserves of crypto exchanges instantly. Proof of reserve has already been implemented by some exchanges, and Changpeng Zhao, CEO of Binance, has argued that all exchanges should now provide this feature.
However, some exchanges have stated that the development of a proof-of-reserves system will take weeks or longer.
Chainlink Labs responded by claiming that its product offers an "out-of-the-box" solution that exchanges can use right away.
The product uses 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. Chainlink Labs launched its Proof of Reserve (POR) product for 'verifying centralized exchange asset reserves, off-chain bank account balances, cross-chain collateral, real-world asset reserves, and much more.'
Although the company claims that its POR solution may restore crypto exchanges through increased transparency, not everyone is convinced by this statement. We can observe this from the ongoing tweets.
The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash