- Several crypto firms have denied exposure to FTX after rumors circulated
- Coinbase, Circle and Tether all denied having exposure to the bankrupt exchange
- A move to publicly show reserves has been backed by major crypto leaders
Various cryptocurrency firms including Coinbase, Tether and Circle have been quick to deny any financial exposure to FTX, as the ‘proof of reserves’ movement gathers pace. Amid the tsunami of rumors in which the crypto space has been drowning over the last few days were suggestions that certain companies were dangerously exposed to FTX, but the key players were quick to denounce such suggestions. Some joined the call for stablecoin issuers and exchanges to offer public, independently verifiable proof of reserves which would go some way to assuaging doubts about the financial stability of key crypto players.
Circle, Coinbase and Tether Deny FTX Exposure
The first companies to come under the microscope yesterday were Circle and Coinbase, which were both revealed to be investors in FTX. Circle in particular came in for a rough ride on the back of recent troubles involving Binance effectively delisting USDC, while Coinbase could have done without any news that might sink its share price further.
However, Circle boss Jeremy Allaire denied that the company had any meaningful exposure to FTX:
5/ Circle is a tiny equity holder of FTX, and FTX is a tiny equity holder of Circle. Circle is also a tiny equity holder of Kraken, Coinbase and BinanceUS.
— Jeremy Allaire (@jerallaire) November 9, 2022
Tether boss Paolo Ardoino was next to deny that Tether had any worries as far as FTX was concerned, despite admitting that Alameda Research, FTX’s trading arm, had “issued and redeemed (a) lot of USDt in the past:
Alameda has issued and redeemed lot of USDt in the past.
But no credit exposure has been matured.
Tether is issued and redeemed upon market demand by our customers.— Paolo Ardoino 🍐 (@paoloardoino) November 9, 2022
Armstrong Suggests Proof of Funds
Next up was Coinbase, which was known to be an FTX investor. However, CEO Brian Armstrong denied that the exposure was relevant:
2/ Second, Coinbase doesn’t have any material exposure to FTX or FTT (and no exposure to Alameda).
— Brian Armstrong (@brian_armstrong) November 8, 2022
In a dig at FTX, Armstrong added that Coinbase didn’t “do anything with our customers’ funds unless directed to by the customer”. Armstrong also referenced an idea that also sprang up yesterday following the opaque nature of FTX’s balance sheet and borrowing practices – on-chain reserve proofs:
Long term, the crypto industry has an opportunity to build a better system with DeFi and self-custodial wallets that don’t rely on trusting 3rd parties. Instead, you can trust in code/math and everything can be publicly auditable on-chain.
This idea was also addressed by Allaire, who railed against the “lack of transparency, lack of counter-party visibility, and project treasuries and balance sheets anchored in speculative tokens are root causes.” Binance CEO Changpeng Zhao also gave the idea the thumbs up and said that Binance would start to operate such a system soon:
All crypto exchanges should do merkle-tree proof-of-reserves.
Banks run on fractional reserves.
Crypto exchanges should not.@Binance will start to do proof-of-reserves soon. Full transparency.— CZ 🔶 Binance (@cz_binance) November 8, 2022
Ensuring such transparency would be a major step towards repairing the damage done to exchange trust during the 2022 collapse, although there will still be some who, quite rightly, still harbor doubts about the truthfulness of the ‘proof’.
