FTX collapse leads exchanges to run audits to reassure investors

livemint.com:

NEW DELHI : The collapse of FTX and the allegation that the crypto exchange misused customer assets worth $10 billion has prompted several exchanges, including some in India, to go ahead with proof-of-reserves (PoR) audits to become more transparent and reassure crypto investors that their assets held by the exchanges have not been misused or misplaced.

PoR is an independent audit conducted by a third party on behalf of a crypto exchange to find out if the customer’s assets are missing from the reserves. The auditor looks into the assets in the book held by the exchange on behalf of its customers and matches them with the actual reserves. For this, they can use techniques like Merkle Tree, a mathematical data structure that encrypts blockchain data securely.

Binance published its PoR last week, which showed that the world’s largest exchange has assets worth more than $69 billion. Indian crypto exchange Giottus said earlier this week that it will publish its PoR after an external audit. Earlier on Thursday, CoinSwitch announced that an independent third-party audit by consulting firm INMACS has confirmed that the total INR and virtual digital assets (VDA) holdings held by the crypto exchange is greater than the VDA and INR it holds on behalf of users of its platform.

“INMACS’ independent report is a testament to our commitment and proactive approach to risk and compliance measures. We will continue to evaluate other ways of establishing trust and transparency as we help India participate meaningfully in the global crypto revolution," said Ashish Singhal, co-founder, and chief executive, CoinSwitch.

Industry experts have welcomed the move, but also warned that a PoR audit is not foolproof.

“Before the PoR audits take