OKX has released its second proof-of-reserve (POR) report. The exchange said it will be publishing reserve reports on the 22nd of every month for transparency reasons.
OKX announced that they included a self-audit feature for users to verify the safety of their assets. The tool uses the Merkle Tree method by taking a snapshot of all accounts and assigns a unique ID to each. Every user’s asset balance is stored as a “Merkle leaf” in the tree. Combining all “Merkle leafs” creates a “Merkle root,” which represents the holdings of all users on the platform.
The authenticity of the report
Merkle trees can be a useful tool for providing proof of reserves for cryptocurrency exchanges. However, it is important to note that the authenticity of a proof of reserves based on a Merkle tree depends on the authenticity of the underlying data and the security of the hash function used to generate the hashes in the tree. If either of these is questionable, the proof of reserves may not be reliable.
In addition to relying on a Merkle tree, there are other steps that exchanges can take to provide transparency and demonstrate that they have the funds on hand to cover customer deposits and meet withdrawal requests. For example, exchanges may allow external auditors to review their books and verify that they have the necessary funds. To protect customer funds, they may also implement other security measures, such as cold storage and multi-signature protocols.
OKX is on one track with some of these extra measures. Although they have not officially utilized any third-party verification platforms, customers can use resources like Nansen or “VerifyAddress” produced by OKX to verify the possession of the funds on their addresses. OKX has also reported that they keep 95% of all funds on their offline storage system.
While the proof of reserve reports released by OKX is a welcome development, the U.S. Securities and Exchange Commission (SEC) warns crypto market investors to not blindly believe PoR reports released by exchanges as they may not always be accurate.