Cake DeFi, a Singapore-based company focused on providing access to decentralized finance (DeFi), has announced the publication of its cryptographically audited Merkle tree proof of reserves.
Developed by Ralph Merkle in 1979, The Merkle tree method is a way of testing that certain information is included in a data set, without revealing the entire data set. In the proof of reserves method, a Merkle tree is used to prove that a cryptocurrency exchange has the reserves it claims to have, without disclosing the exact amounts of each cryptocurrency it holds, in order to protect the privacy of the platform and of its users.
Security and transparency aren’t just duties, they’re a necessity, and we live them every day. As part of our ongoing effort to build the most trusted and transparent one-stop #DeFi and Web3 platform, we are publishing our #ProofofReserves https://t.co/btWi3bbqxJ
—Cake DeFi (@cakedefi) November 11, 2022
According to the DeFi service firm, users can already verify their assets, as well as the company’s liabilities, in a newly enabled feature on its website that allows public access to its Proof of Reserves Merkle tree. The tool is intended to allow users to self-audit their own funds within the framework of the Merkle tree data structure.
For the sake of transparency, Cake DeFi said it will also allow users to see how returns are generated, with real-time on-chain data on client funds.
Although many exchanges, such as Binance, Crypto.com, Bybit, and OKX, have deployed Merkle tree-based reserve proofs to promote transparency following the FTX crash, some officials remain skeptical about the effectiveness of tree-based reserve proofs. Merkle.
In a December 22 interview with The Wall Street Journal, the SEC’s current chief accountant, Paul Munter, He shared that the results of these audits are not necessarily an indicator that the company is in good financial condition. According to him, the exchanges’ proof of reserves “lack” sufficient information for stakeholders to determine whether the company has sufficient assets to meet its liabilities.
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