Data lake provider TRES is introducing a new method to track exchange and custodian reserves, joining solutions like Chainlink to meet institutional demand.
Proof of reserves was developed to ensure greater transparency for companies holding digital assets on behalf of investors. Now, institutions are looking for tools to track and audit on-chain assets in real time.
Web3 companies are eager to meet this demand. For example, TRES is launching a proof of funds mechanism that offers automated, real-time snapshots for crypto exchanges and custodians.
“Exchanges only track wallets in their co-mingled omnibus account. This is just a balance snapshot of these specific wallets, meaning they can potentially be manipulated,” said Tal Zackon, co-founder of TRES.
Proof of reserves helps exchanges demonstrate that they hold enough assets to back their customers’ deposits, reducing concerns about insolvency and misuse of funds. The collapse of FTX in November 2022 highlighted the need for effective asset monitoring and transparency in how exchanges manage user funds.
However, the lack of standardization among companies remains a significant issue. “We didn’t think it kept a proper audit trail or provided real, validated trust to customers,” Zackon explained.
For example, Binance’s proof of reserve page indicates that although users’ assets are fully backed, most corporate holdings are stored in wallets not included in reserve calculations. Kraken, on the other hand, only considers snapshots of spot balances for selected assets like Bitcoin, Ether, Cardano, Polkadot, XRP, and some stablecoins.
“Real-time balance tracking can be done manually, but seeing a full audit trail and financial history is a bigger challenge,” said Zackon.
On-chain monitoring solutions have existed for some time. Chainlink, for instance, uses oracles to conduct decentralized audits of assets and liabilities for exchanges. Glassnode also tracks exchange balances and analyzes on–chain data to assess reserves.
The increasing adoption of digital assets by traditional companies is likely to boost the demand for standardized reports using clear methodologies. According to Coinbase’s 2023 Institutional Investor survey, 64% of current crypto investors expect to increase their allocations over the next three years.
“We believe that for crypto to progress, it must align with the regulatory framework of traditional financial systems,” noted Zackon.
Summary Review: The introduction of proof of funds technology aims to provide real-time, standardized, and transparent reporting of exchange reserves, addressing the industry’s need for effective asset monitoring and helping build trust among investors and regulators.
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