FTX vs Binance: Proof-of-Reserves

Why we need transparency in centralized exchanges

FTX is currently experiencing the equivalent of a bank run.

In theory, if they are operating as a exchange should, that should not be a problem. Exchanges are supposed to operating at a 1:1 reserve ratio. Maybe they experience some delay in their services due to illiquidity or difficulty to access some of their assets, but they should not be insolvent.

However, if they’re operating under fractional reserve — directly or indirectly through related parties — they’re behaving like a bank. In this case of enough people come for their money, they’ll run out of money.

Since there’s no accurate and public proof of reserves, we can only trust (or not) what FTX tells us.

In the absence of relevant costs for users, the smart thing is to withdrawal— to take a wait and see approach.

While I tend to trust the way FTX is managed, I don’t believe the CEO retweeting a rumor about “an airdrop for not moving your funds” inspires much confidence in times like this.