Coppola Comment

This is the story of a bank that put all its eggs into an emerging digital basket, believing that providing non-interest-bearing deposit and payment services to crypto exchanges and platforms would be a nice little earner, while completely failing to understand the extraordinary risks involved with such a venture.  On 1st March, Silvergate Capital Corporation announced that filing of its audited full-year accounts would be significantly delayed , and warned that its financial position had materially changed for the worse since the publication of its provisional results on January 17th, when it reported a full-year loss of nearly $1bn. The stock price promptly tanked, falling 60% during the day:   Platforms, exchanges and other banks halted or re-routed transactions on Silvergate's SEN payments network, and customers that had other banking relationships removed their deposits. In response, Silvergate halted the SEN network. A banner on its website now reads: Effective immediately

Proof of reserves is all the rage on crypto platforms. The idea is that if the platform can prove to its customers' satisfaction that their deposits are fully matched by equivalent assets on the platform, their deposits are safe. And if the mechanism they use to prove this uses crypto technology, that's even better.  Crypto tech solutions have surely got to be much more reliable than traditional financial accounts and audits - after all, FTX passed a U.S. GAAP audit .  No, they aren't. Proof of reserves as done by exchanges like Binance does not prove that customer deposits are safe. It is smoke and mirrors to fool prospective punters into relinquishing their money, just like claims that exchanges and platforms are "audited" or have "insurance". There are no audits in the crypto world, there is no insurance, and as I shall explain, proof of reserves proves absolutely nothing. The biggest crypto exchange, Binance, uses a Merkle tree proof of reserves. H