Proof of reserves is not a solution to CEXs threats

I feel it's a needed enlightenment as people are clearly on the way to getting their toes dipped into more extreme risks as centralized exchanges attempt to look as a viable option for financial operations via reserve audits. It is important we look back at how several scam projects had rug pulled users even with proposed liquidity locks, this is an example that when it comes to cryptocurrency, a system need not be trusted, any reason to trust is a reason to abstain.

It's quite amusing that people do not realize that part of what was happening at FTX was the unbacked outflow of FTT tokens, if I'm not mistaken, so while it's now a believe that proof of reserves adds a layer of security, they are still an amounted risk to investors buying up tokens with no unique utility setup.

The transfer of power

Unlike Bitcoin, whereas network level governance isn't influenced by the cryptocurrency itself, most modern time projects breathe on the influence of its investors, meaning that tokenization of governance is a growing utility and these digital assets are the mechanism of power.

Proof of reserves doesn't restrict exchanges from leveraging whatever for whatsoever reasons, the good of these platforms is a fraction of the harm they can cause when looking at blockchain level utility.

DeFi has to be the answer!

Self custodianship is an important spice to the ecosystem, the more people realise that it's a necessity to operate on the grounds of individual assets control, not on centrally managed infrastructures, then we can dream of a safer building and scaling environments.

Sadly, the lack of a decentralized Fiat on and off ramp contributes to the growing usage of centralized exchanges, and it's even worse that developers tend to ignore this needed alternative whilst chasing after bored monkeys and avatars just so another medium of high industry spending can be raised.

Not to be misinterpreted, the Metaverse and all associated products are inevitable going up the ladder, but it's unlikely we even get there if these weaknesses are not tackled!

A Broken Foundation renders the economy useless

Let's ask ourselves these questions: where do people run to when the heat level increases? Majority go to centralize parties to escape whatever storm is felt, this makes these institutions the bigger market holders as they vastly control who gets to be redeemed and who gets rekt.

Building decentralized alternatives ensures that no one party has anyone's desperation or tension to leverage for a profit, it becomes even much easier to retain value when there are no centralized factors to the exiting of certain markets. This is where a financial hedge can be fully developed, leveraging smart contracts to build out sustainability for the ecosystem.

It doesn't take so long before people forget about reserves even though it's clearly not a security measure, all money in the bank is at high risk, if nobody sees that then let's believe we are all blind to the risk of literal transfer of valuables to another party.

So I consider proof of reserves to be comical, a means of buying trusts to lure more gullible people into blindly trusting the system. There are clearly more than one way an exchange can rekt its users and proof of reserves isn't a magical spell to cast and restore factory to a stable environment.

Posted Using LeoFinance ^Beta