Bitcoin proponent Nic Carter has published an in-depth analysis of the centralized exchange's reserve proof and ranked the certifications provided by some of the most prominent cryptocurrency trading platforms in the space.
Carter published a detailed examination of the quality of proof of reservation (PoR) of various exchanges. The crypto executive used parameters such as certification of assets held and disclosure of liabilities, bringing in a third-party auditor, demonstrating credibility by taking a PoR for all assets, and committing to an ongoing procedure to determine which PoRs are of the best quality.
The crypto trading platforms Kraken and BitMEX topped the list. According to Carter, Kraken, which has hired Armanino for its proof of reserves, gives clients a "good level of confidence" that there are no hidden liabilities. Carter also praised the trading platform's commitment to conduct PoR every six months.
On the other hand, BitMEX, which also received praise, did not rely on an auditor but opted for a very transparent model. On the assets front, the exchange listed all BTC balances held by the exchange and proof that BitMEX multisig can spend them. With their liabilities, the company published the complete Merkle tree of user balances. "This means there are no issues with excluded or negative balances, as anyone can examine the entire set of liabilities," Carter wrote.
Related: CryptoQuant Checks Binance Reserves, Reports No 'FTX-Like' Behavior
While some received high marks in terms of PoR score, crypto exchange Binance's PoR did not fare well in the rankings. According to Carter, the exchange's low PoR score is because the PoR is incomplete. The cryptanalyst believes that despite Binance CEO Changpeng Zhao (CZ) stressing the importance of PoRs after the FTX collapse, the executive โhas yet to face his own challenge.โ He wrote:
โBinance's first PoR does not provide strong guarantees. It only covers Bitcoin, which only accounts for 16.5% of its clients' assets."
While the PoR allows individual users to verify that they are included in the set of responsibilities, Carter said the PoR does not show the full list of responsibilities. This makes it difficult for a third party to verify the procedure according to the analyst.
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