A team of former Jane Street and PIMCO traders has raised $15 million to support centralized exchanges, stablecoin issuers and other asset managers in the cryptocurrency space, according to a press release the team showed to Cointelegraph. Develop a proof of solvency protocol. Dubbed "Proven," the new protocol purportedly uses zero-knowledge proofs to reveal an institution's assets and liabilities without revealing customers' personal data.
According to a press release, the Proven team is made up of quantitative traders, portfolio managers and researchers from Wall Street firms Two Sigma, Elm Partners, Pimco, Jane Street and others. The initial $15 million seed round was led by Framework Ventures, a cryptocurrency-focused venture capital fund.
Jane Street is also the former employer of Sam Bankman-Fried, who was charged with fraud following the collapse of his cryptocurrency exchange FTX. Proof of Solvency protocols attempt to make transactions more transparent to avoid another FTX-like disaster. Proven co-founder Richard Dewey expressed hope that the new protocol will allow cryptocurrency companies to regain public trust while protecting privacy, saying: “The past few months have highlighted a problem that has long plagued traditional financial and digital asset firms – effectively cultivating trust with clients while maintaining the necessary level of privacy. We designed Proven to be a win-win solution , giving customers and regulators confidence while protecting sensitive customer information.”
The Proven team says it already has a list of pilot clients, including CoinList, Bitso, TrueUSD and M11 Credit. Since the FTX debacle last year, many centralized exchanges, stablecoin issuers and other cryptocurrency custodians have sought to increase transparency by providing cryptographic proofs of assets and liabilities. However, providing such evidence proved to be a challenge. While most companies have been able to verify their on-chain assets, proving off-chain liabilities to a skeptical public is much more difficult.
Exchanges such as Gate.io, OKX, and Kraken have tried to disclose liabilities through encrypted Merkle trees. This enables users to prove that their balance has been included in the company's liability statement. However, it has also been criticized for allegedly allowing companies to fake liabilities by including negative balances. Zero-knowledge (ZK) proofs of solvency purportedly solve this problem by allowing exchanges to use ZK proofs to show that customer balances are non-negative, according to a technical explanation of the concept by app developer sCrypt.
However, not all zero-knowledge proof experts agree that this process will work. For example, Aleph Zero blockchain founder Matthew Niemerg told Cointelegraph in a statement:
“While zero-knowledge proofs can be used to provide guarantees about on-chain balances, unless all liabilities are posted on-chain (using cryptography), they become rather limited in terms of auditing a company’s solvency. Even then, there are no guarantees All liability is exposed. In short, cryptography does not solve the problem in the more pathological case where the audited party is deceptive." As such, the debate continues as to whether centralized actors can be truly transparent.
