Dubai-based Bybit, the world’s third-largest crypto exchange by volume, set a new benchmark in the cryptocurrency market with its latest proof-of-reserves (PoR) attestation, which has been expanded to cover 32 cryptocurrencies, according to a Dec. 20 press release.
The report aims to show customers that Bybit has fully backed all their assets within its sophisticated multi-tier wallet system. The collateralization of the tokens ranged from 100-124%, based on the report.
Proof of reserves
Bybit’s proof-of-reserves shows that the company holds 100% to 124% collaterization on the 32 tokens in the report. The exchange’s BTC collateral stood at 107%, and its ETH collateral stood at 119%.
The exchange’s commitment to asset security and transparency was underscored by top industry ratings, including a perfect score from CoinGecko and an ‘AA’ rating in the 2023 CCData Crypto Exchange Benchmark Report.
Bybit’s innovative wallet system, which includes cold, warm, and hot wallets, along with collaborations with leading custodians like Fireblocks and Copper, reinforces the security and accessibility of user funds.
In the broader crypto exchange industry, PoR has become part of the trust factor. Major exchanges like Binance, Coinbase, and Kraken have adopted PoR practices, each with its own methodology. These practices served a shared goal: ensuring that customer assets were secure and fully backed.
Regulatory concerns around PoR
While PoR reports are seen as a step towards transparency, regulators have cautioned about cryptocurrency businesses relying too heavily on them.
The Public Company Accounting Oversight Board (PCAOB), operating under the jurisdiction of the U.S. SEC, has specifically warned investors against placing too much trust in these reports. The PCAOB emphasized that PoR reports are not audits and do not adhere to specific legal standards.
The regulators have pointed out that these reports provide only a snapshot and do not offer meaningful assurance about a crypto entity’s liabilities, the rights and obligations of digital asset holders, or the efficacy of internal controls or corporate governance.
The SEC has also voiced concerns, advising investors to be wary of PoR statements. Acting Chief Accountant for the SEC, Paul Munter mentioned that these reports are designed to show that a crypto firm has enough assets to cover its customers’ funds.
However, he cautioned that the mere provision of a PoR from an audit firm should not lead investors to have too much confidence in its ability to cover its liabilities. This concern arises because PoR reports lack the comprehensive information necessary for investors to assess a full picture of a company’s financial health.
The heightened caution from regulators comes after the failures of prominent cryptocurrency companies like FTX, which led several audit firms to reconsider offering this form of assurance. While some global platforms like Binance have also adopted PoR, regulators suggest that PoR alone is insufficient and that companies must undergo more thorough, proper audits.