Cryptos on the road to full transparency? – A sweet dream for some, an obligation to stand out from the banks for others. A fact already recorded according to DeFi enthusiasts. A trend that has resumed its path of concretization after The shocking liquidity crisis of FTX. the “Backup test” suddenly reappears. All explanations!
Towards good cryptocurrency exchanges for students?
In the past few days, the market has been swinging dangerously following the revelations regarding theinsolvency of FTX, until then the second largest stock exchange in the world. While the Binance’s takeover failshis boss Changpeng Zhao (CZ) puts the concept of “Backup test”. The goal is clear: a full transparency regarding the liquidity of the crypto platform on which the funds of investors and individuals are based.
It is therefore about rebuild complete trust between the cryptocurrency exchange and its users. A trust undermined by recent events. For this, this concept is based on the technology of “Merkel trees”. In short, each user can, at any time, verify that their funds deposited on Binance are actually based on tangible assets.
Like CZ the to rememberthe traditional financial systeml, therefore, the banks have all adopted the fractional reserve. They have less cash than the total amount deposited by savers in their bank accounts. We know it. If all users of a bank wanted to withdraw their money at the same time, this would lead the bank into bankruptcy. This is exactly what just happened on a smaller scale with theFTX deal.
For the Binance boss, cryptocurrency exchanges shouldn’t reproduce this error, but on the contrary lead by example. They must prove that for every dollar deposited, the tangible asset that represents this value in the ratio of 1: 1.
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Proof of Reserve: the only solution to regulation?
One thing is certain: recent events will not solicit the lawsuit of cryptocurrencies from regulators. the Terra Crash (MOON) already last May it had dealt a severe blow to the ecosystem. Judged at the time as a case in point, this collapse had nonetheless accelerated regulatory initiatives, such as MiCA in Europe. This had also completed to confirm the start of the bear market in the investors’ minds.
Although totally different in its context, this failure repeats itself once again, with impact on the entire market which we probably don’t suspect yet. Because FTX, as the second stock exchange on the market and privileged partner ofAlameda research, it was a real octopus. We no longer count the investments made by Sam Bankman-Fried in companies in the cryptocurrency sector. And conversely, those with part of their funds based on FTT’s hitherto assumed power, the FTX token.
The consequences of this accident have yet to be discovered. But there is no doubt that this event will have long-term repercussions on the market. With that at stake, a massive adoption of the “Backup test” from exchanges seems to be the only way out. A way to save face while waiting for a regulation that should prove to be all the more severe given the context. This trend towards transparency could go mainstream, hopefully allowing the crypto ecosystem to bounce. The one who still has so many revolutions to be revealed.
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