Taming the Wild West of Digital Assets with Proof of Reserves
by: Brandon Russell,Patrick Clancy, and Jeremy Nau
In April of 2019, Quadrigacx, Canada’s largest cryptocurrency exchange, experienced a sudden and shocking collapse, declaring bankruptcy after reports that up to $190 million (USD) from 115,000 customers had vanished into thin air. Overnight, account balances became worth as much as the screenshots they were printed on, and the exchange’s clients were left holding the bag. This is not simply a cautionary tale — it’s why Proof of Reserves is vital in stabilizing and building trust in the digital currency marketplace.
Unavailable in traditional markets, Proof of Reserves ensures assets noted on the books of exchange platforms actually exist and are owned and controlled by them. With Proof of Reserves, customers can confirm that custodians and exchanges they use truly hold 100% of the funds that they say they do through audits by a trusted and verified 3rd party.
Etana Custody, a global custodian that provides the platform, technology, and security to trade and invest safely in digital currency, is partnering with Armanino LLP, a top 25 US accounting and consulting firm, to shepherd Proof of Reserve safeguards into the industry. Etana will work with Armanino as a trusted third-party to perform Proof of Reserve procedures to establish a reliable foundation of transparency and accountability that underlies the security of the broader digital asset marketplace. The solution will be used by institutional partners and everyday clients alike.
With Armanino’s TrustExplorer’s Proof of Reserves portal, Etana will have an accessible and reliable tool to demonstrate point-in-time reserve ratios to all of their clients, partners, and regulators. The User Confirmation portal has a unique feature allowing clients to ensure Etana has included specific customer IOUs in the Proof of Reserves.
More and more, the regulatory aspects that have come to define legacy capital markets are beginning to combine and coalesce in cryptoland — a positive and stabilizing force in the industry.
In addition to this new offering, clients using Etana also gain access to capital efficiencies within Etana’s network of sub-custodial relationships and off-exchange trade settlement, which reduces counterparty risk. Clients can keep assets secure and insured with Etana’s global custody solution.
Everyone deserves to know that the exchange or custodian they trust to hold their deposits can prove it has possession of those funds — and standards like Proof of Reserves will only strengthen the digital asset industry in the days ahead. Our entire market benefits as trust increases and risks are mitigated; that’s exactly what we’re setting out to do.