Prominent Latin American crypto exchange Bitso has posted all funds are secure during a time when some are questioning the viability of certain crypto marketplaces and counterparty risk associated with the FTX bankruptcy. Bitso said in a statement that it was going beyond proof of reserves, providing “proof that matters.”
Bitso states that some proof of funds or proof of reserves are just lists of wallets and this raises concerns for two main reasons:
- Ownership of the keys needed to move coins from exchange wallets is not proven.
- There is no guarantee that the coins in these wallets will be enough to cover all the obligations of the exchange.
Bitso states:
“To be solvent, assets must be greater than liabilities. In other words, being solvent means that, given current assets and liabilities, if clients were to withdraw 100% of their funds simultaneously, they can do so. As long as clients do not know the number of liabilities, they cannot know if a company is solvent or not.”
Bitso claims that it is more important to show the total balance of reserves which are sufficient to cover total liabilities or customer funds.
Bitso says that it has been doing this since 2019 due to the company’s cryptocurrency custody license.
“We are a complete global booking platform, which means we hold assets for every one of our clients’ deposits, and we don’t touch these funds without their explicit permission. We are working on several strategies to offer transparency to our clients, but some of These actions take time because we don’t want to do it fast; we want to do it right.”
Bitso added that there are five metrics they will provide in the coming months:
- A Merkle tree and a credit report: a mechanism to validate the client’s balance. The company promised to have it in less than a month.
- A Third Party Audit: Bitso looks for an external party to partner with that will validate liabilities and assets and vouch for solvency.
- Industry working group: Bitso has contacted many renowned companies and industry leaders to work together to build an industry standard.
- Zero Knowledge (ZK) Proof: This cryptographic proof demonstrates when something is true without revealing any customer information.
Bitso added that it is committed to working closely with regulators as cryptocurrencies continue to evolve. The company is also committed to sharing industry best practices and creating regulatory frameworks that create a more transparent, secure, and accountable industry.
