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Why proof of reserve may not be the only criteria for identifying a healthy exchange.


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Amidst uncertainty and doubt about the safety of most centralized exchanges after FTX collapse, most top CEXes adopted and launched the Merkel tree Proof of Reserve to proof. This concept have given traders the opportunity to access the liquidity state of their various preferred exchanges.

This initiative may have restored confidence on the use of centralized exchanges. However, few exchanges have further introduced a concept that wouldn't only prove their healthiness (based on liquidity alone) but to some extent give new user and existing traders confidence of assets safety. 

The customer protection fund is the emerging concept and could be another verifiable tool to identify a healthy exchange because there have been concerns about relying only only on PoR due to the fact its only a single snapshot in time and not a live accounting of the total assets. 

Top CEXes such as Binance, Bitget and OKX have launched the customer protection fund with total value of the fund already exceeding $2 billion. These 3 CEXes are currently the few to adopted this emerging concept ( check Blockchain analytic firm from Nanseen on June 14 and cointelegraph Zhiyuan Sun June 15). 

This should be a welcome development even though it doesn't guarantee assets safety and solvency of an exchange but it a confidence boost and has obviously led to increase in liquidity on the above mentioned CEXes except for Binance which may be attributed to their current litigation with the U. S SEC and exit from few European and north American countries.

 

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