The co-founder of Ethereum is known for establishing core ideas for DeFi sector development, such as the Trilemma of Blockchain and Proof-of-Reserve. The cascading impact of FTX’s demise has opened a sinkhole of panic and fear in the cryptocurrency market.
To this end, the DeFi sector bigwigs have come forward to form a united front and address the matter.
The suggestion of Proof of Reserve has been endorsed by Coinbase CEO Brian Armstrong and the CEO of Binance exchange CZ. More and more cryptocurrency enterprises are resolving to share PoR certificates for the benefit of their users.
These certificates are like audit reports that ensure that these cryptocurrency entities are not in danger of bankruptcy.
Merkle Tree Protocol and the Lack of Transparency in the DeFi Sector
The idea of Buterin suggested that blockchains should adopt Merkle Tree audit reports to verify their reserve balances. The Merkle Tree protocol would be protected by ZK SNARK or (Zero-Knowledge Succinct non-interactive argument of knowledge). In this method, all the custodial funds would be covered under a Merkle Tree protocol.
On the other hand, the privacy of the DeFi enterprise would be protected by ZK SNARK as a hashing layer. In this manner, one user would not be able to know about the personalized account reserves of another user.
Merkle Tree is an effective audit system for blockchain because it can encode it effectively and make the authentication process faster.
Coinbase CEO Armstrong has recently praised Buterin for sharing this idea that will make the process of on-chain accounting a lot more practical and easier.
He further claimed that in this manner, the blockchain economy could improve and solve the biggest issues it is facing now on account of the FTX collapse. Meanwhile, Binance CEO has also claimed that he is working on the PoR idea as well.
Buterin has also maintained that the DeFi platform should evolve into non-custodial platforms, but they must ingrain some aspects of regulated enterprises. He claimed that such centralized structures could assist in wallet recovery and ensure the safety of the investors.
He further explained that fiat and crypto exchanges could happen in the form of cash-ins and outs or using intermediaries such as stablecoins in the future.
