Crypto exchanges should be made to prove they can cope with a flood of withdrawals from customers, crypto bourse OKX has said, as regulators tighten the screws on the sector in the wake of FTX’s collapse last year.
The Seychelles-headquartered digital assets exchange, which has published a so-called proof of reserves for the past year since the implosion of FTX, said regulators were already moving further into the space to prevent a similar implosion to Sam Bankman-Fried’s exchange.
While proof-of reserves is a measure that was brought in to foster trust in exchanges and issuers of stablecoins, their publication is not the same as a full external audit.
The calls by OKX came as the business published its latest update on reserves yesterday, revealing it had some $12.5bn assets on its books and its customers’ holdings were entirely backed 1:1 by digital tokens.
Proof-of-reserves have begun to be adopted by more exchanges across the industry after FTX was forced to halt withdrawals, amid a rush of customers pulling their assets amid fears over the state of its balance sheet. The company subsequently declared bankruptcy as it was revealed the exchange had misused customer funds.
OKX commercial chief Lennix Lai told City A.M. that more firms should now be made to publish proof of reserves to shore up trust.
“It should absolutely be mandatory for any exchange that wants to build genuine trust among its users,” he said.
“Surveys we’ve conducted on social media show that monthly proof of reserves is important to the vast majority of crypto users.”
Lai said it was already seeing that regulators and policymakers were starting to see the “benefits of proof-of-reserves” after two US senators backed the use of PoR in determining industry standards for digital assets.
Texas has also signed into law a bill requiring cryptocurrency exchanges licensed by the state’s Department of Banking to maintain enough reserves to fulfil their clients’ payment obligations.
Stateside regulators have taken a more militant stance towards the sector than the UK in the wake of FTX’s collapse last year. British regulators and lawmakers have been on a charm offensive to try and woo crypto firms into setting up shop in London.
The Treasury confirmed yesterday it would push ahead with plans to regulate sector and draw up tailored rules. Crypto firms were also forced to rein in rogue marketing tactics earlier this month after the regulator rolled out new industry standards.
OKX declined to answer questions on its view on UK regulation and whether it saw more tailored UK rules as an opportunity to expand.
The UK government began its efforts to woo the sector in April last year, just before the collapse of the Terra and Luna tokens sent shockwaves across the industry as the first of a string of major collapses.