The announcement comes as cryptocurrency exchanges are unveiling their Proof of Reserves following the FTX collapse.
Digital asset management firm Grayscale Investments revealed that it will not publish its Proof of Reserves “for security reasons.” The announcement comes as cryptocurrency exchanges are unveiling their Proof-of-Reserve following the FTX crash.
Grayscale Investments made its decision known through a thread posted on Twitter on Friday, November 18. The digital asset management company highlighted that it has been so, “due to security concerns”:
“We do not make on-chain wallet information and confirmation information publicly available through a cryptographic Proof-of-Reserve, or other advanced cryptographic accounting procedure.”
Grayscale Acknowledges That Decision May Breed “Disappointment”
The digital asset management firm also acknowledged that the decision not to share its Proof-of-Reserve (PoR) could turn out to be a “disappointment” for investors. However, Grayscale points out that, “panic caused by others is not reason enough to circumvent the complex security arrangements that have kept our investors’ assets safe for years.”
On the other hand, through an official statement, Grayscale indicated that the transparency issue is taken very seriously, and highlights that the company has “A long history of constructive work with regulators to create and strengthen complete and fair risk disclosures for our digital asset products.”
Grayscale’s statement further affirms the following:
- “The holdings of Grayscale’s digital asset products are safe and secure.
- Each of Grayscale’s digital asset products is set up as a separate legal entity.
- All digital assets that underlie Grayscale’s digital asset products are held by Coinbase Custody Trust Company, LLC (Coinbase Custody) as custodian for each product.
- The organizational documents governing each of Grayscale’s digital asset products, as well as the custodian agreement with Coinbase Custody, prohibit the digital assets underlying the products from being lent, borrowed, or otherwise encumbered.”
At the same time, the firm ruled that its investment products are audited following US GAAP principles, and subsequently, documents from the public filings of its cryptocurrency-based trusts are shared.
It is worth noting that, amid expectations for the Proof-of-Reserve release, both Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust (ETHE) hit all-time lows recently.
What is the Importance of “Proof of Reserves”?
The recent collapse of the FTX cryptocurrency exchange, as well as the bankruptcies of companies such as Celsius Network, Voyager Digital, and Three Arrows Capital, have intensified investor confidence in centralized institutions.
It is for this reason that Proof of Reserves emerged as an opportunity for platforms to show the transparency of the assets —and therefore their funds— that they have deposited.
Currently, platforms such as Ledn, Nexo, Kraken, BitMEX, Gate.io, Binance, Crypto.com have already shared their respective Proof of Reserves.
By Audy Castaneda