Proof of Reserves is Future of CEX industry

It’s opening morning at London’s Blockchain Economy Summit, the UK’s largest gathering of crypto and blockchain companies, and centralized exchanges are a hot topic.

In the aftermath of the collapse of FTX, the conference debate is centering on the future of the CEX sector.

Shaping the debate is Lennix Lai – Managing Director of OKX.

Lai opened the conference with an impassioned presentation on the future of transparency for the CEX industry. Highlighting the technology being developed by OKX to help prevent another monumental CEX collapse.

“[Blockchain is] offering a new financial system for humanity … with the ability to solve issues of financial inclusion,” said Lai.

Proof of Reserves (PoR) – the future of CEX transparency?

But to achieve this mass adoption. Against a backdrop of ramped-up efforts by regulators to pin-down this rapidly emerging industry. It is necessary for CEXs to meet regulatory agencies in the middle.

Working together to introduce technologies that build more trust and transparency into the industry.

OKX is pioneering this field – as Lai revealed freshly incorporated Proof of Reserve (PoR) technology on the world’s second largest exchange.

This creates a system that enables user verification of their funds.

Using Merkle Tree data structures, PoR technology is able to disclose the total balance of a user’s assets. While simultaneously checking this against on-chain snapshots of connect wallet addresses.

The results are impressive claimed Lai. Affording the ability to reveal the exact total of all user funds on the exchange, and verifying the existence of 1:1 CEX reserves.

In a practical demonstration, Lai revealed that OKX has $8.6bn in reserve to match 1:1 user deposits over the past 4 months.

Proof of Reserves could become industry standards claims Lai

Gone are the days of expensive hit-or-miss audits. This technology offers a far cheaper and more effective means for increasing transparency on CEXs.

And with OKX planning to further developer the PoR technology to work utilising ZK-Snarks in 2023. This Proof of Reserves model could become infinitely more scalable and afford complete individual privacy to users.

ZK-Snarks bundles transactions together – providing a public verification of the size of the transaction. Without revealing the individual data of single transactions.

Lai believes that 2023 will see a larger scale roll-out of this technology across most major exchanges. Going as far as to suggest, this year might be the ‘best time’ in the industry.

With regulator understanding increasing by the day, and exchanges working towards better governance and safer reserve levels – real institutional adoption could soon follow.