Chainlink wants to create transparency in the crypto sector

The first exchanges draw their lesson from the FTX stock market crash. Binance and Crypto.com will disclose their reserves in the future. Other platforms are likely to follow suit. The magic phrase is “Proof of Reserve”: procedures by which reserves can be tracked. So that a disaster like FTX doesn’t happen again. Such a model was already developed by Chainlink in 2020, which could now be used more frequently.

Chainlink wants to regain trust

After it turned out that FTX did not have the necessary reserves, the house of cards of the crypto exchange collapsed in fast motion. Customer funds are said to have been embezzled and the shaky framework supported by FTT tokens. Had FTX been open with its capital reserves, worse could probably have been prevented. The stock market crash didn’t just burn billions. The entire crypto sector has been damaged by lost trust.

Systems like Chainlink’s could help recover this. Chainlink’s Proof-of-Reserve model allows reserves to be regularly checked through automatic verification. For example, from lending services, cross-chain bridges or trading platforms. Asset reserves are constantly updated through smart contracts. This would prevent more tokens from being issued than there are assets to back them up.

“Let’s build a better Web3”

Data can be traced back both on- and off-chain via Chainlink’s Oracle network. According to Chainlink uses the Proof-of-Reserve system “the largest decentralized repository of secure and Sybil-resistant node operators in the industry to acquire and verify data on reserves.” The nodes are “resistant to threats such as man-in-the-middle or denial-of-service attacks”.

Approaches such as Chainlink’s Proof of Reserve could help create the much-needed transparency in the crypto sector in order to minimize reputational damage. “Crypto should be about building an open and transparent global economy”, according to Chainlink on Twitter. In doing so, “the mistakes of the traditional financial system should not be made again and again”. One can only hope that the FTX scandal was a wake-up call for the industry.