30th May 2023 > > OKX.

tl;dr

PoR (Proof of Reserves) is an improvement but don’t fall for all the hype.

Market Snap (at time of writing)

Market Wrap

With food price inflation apparently at record highs in the UK, price controls are back on the agenda. The most effective policy of ensuring lower supply and lower quality of goods in the face of increased demand is that of price controls. These self-inflicted economic woes probably reduce the appeal of cryptos in the short-term due to risk aversion but can only ever have a long-term positive impact as a means of moving funds out of an increasingly damaged fiat system. With futures markets almost continuously skewed to the short side there is a body of opinion that agrees with the first half of that proposition.

Curious Cryptos’ Commentary – This is a weird one

Binance no longer allows UK citizens who hold sterling in their Binance account to exchange for USDT.

But you can buy USDT directly from your debit or credit card in GBP.

I am sure this is because of some new regulatory or compliance requirement, but it’s clearly nonsense.

The UK government, regulators, and bureaucrats are deliberately throwing away crypto tax dollars, they are deliberately increasing inflation, they are deliberately making every one of us poorer with extortionate tax demands, and they are the cause of the ever-rising interest rates brought on by the decisions they have made over the past three years whilst refusing to acknowledge this fact.

We even have senior members of this government calling for a recession. It will come as little surprise to hear that this person was also an enthusiastic supporter of a zero-COVID strategy, disqualifying him from ever being competent enough to hold high office. Yes, that is you Jeremy Hunt, Chancellor of the Exchequer. Hunt makes one almost feel nostalgic for the Gordon Brown days, not an emotion I have previously considered in that context.

This is all beginning to annoy me a little.

Curious Cryptos’ Commentary – OKX

OKX is a centralised cryptocurrency exchange has released its seven “Monthly Proof of Reserves” report and audit:

https://www.prnewswire.com/news-releases/okx-publishes-seventh-monthly-proof-of-reserves-showing-usd10-billion-in-btc-eth-and-usdt-301836318.html

https://www.okx.com/proof-of-reserves

Using an advanced cryptographic tool known as zk_STARK based upon the theory of zero-knowledge proof (https://en.wikipedia.org/wiki/Zero-knowledge_proof) this audit has the objective of proving that reserves held by OKX are in excess of customer deposits to the platform.

The motivation for this development was the implosion of FTX.

If you recall, customer assets were co-mingled with Alameda Research, an associated hedge fund, and were also used to buy luxury apartments, and to fund some prodigious drug-taking activities amongst its executives. A significant portion of the reserves were held in its native token, a decision of breathtakingly poor risk management. A run on the exchange exposed these fraudulent failings, though fortunately readers of the CCC were warned beforehand and had time to remove their assets from FTX.

…

Does this report and audit guarantee assets at OKX are safe?

Well, yes and no, but mostly no.

The situation is undoubtedly an improvement on what we had before. All centralised cryptocurrency exchanges will be forced down this route, and they will compete on ever-improving transparency. This is a patently obvious good thing so please do not think I am being churlish.

But there are still some problems.

OKX is headquartered in the Seychelles. I am unfamiliar with the local banking requirements, though I am sure there is a need to segregate customers’ fiat funds. I cannot be sure that segregation of customers’ crypto funds works in the same way, or that any such segregation can be enforced by law.

In fact, I cannot be sure that segregation of customers’ crypto funds based in any jurisdiction in the world can be enforced by law. And nor can anyone else as that has not been tested, to the best of my knowledge.

There is also that age-old hacking problem that brought down Mt. Gox in 2014. Though this is very much a tail-end risk, as cryptos held by OKX will be in many different wallets with multi-sig requirements, it is a fact that no amount of fund segregation can help if those funds no longer exist.

…

I heartily recommend that you keep no more than 5-10% of your crypto stash on an exchange, but if you haven’t yet learnt that lesson, I guess you never will.