Coppola Comment

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

Yesterday, the SEC issued a Wells notice to the stablecoin issuer Paxos , warning it that the SEC intended to take legal action against it for issuing an unregistered security. The security in question is the fully-reserved stablecoin BUSD (Binance USD), which Paxos issues expressly for use on the Binance crypto exchange. The Wells notice doesn't apply to Paxos's other fully-reserved stablecoin, USDP, which it issues for use on its own platform.  A few hours later, the New York Department of Financial Services (NY DFS) ordered Paxos to stop minting BUSD. In a consumer alert published on its website, the NY DFS said there were "several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD." It didn't specify what these issues were, but it went on to clarify that Paxos's BUSD and Binance's coin of the same name are not the same thing, and that it only regulates Paxos's coin, not Binance's: