CoinDesk
Gate founder and CEO Lin Han says the exchange holds enough assets in cold storage to cover 104.58% of customer balances, a figure undergoing an independent audit. Gate is introducing Proof of Security, or PoSEC, to measure whether offline assets could cover users if an exchange lost everything in its internet-connected wallets.
The proposal follows a major cryptocurrency theft at Binance, which said it set aside $6.34 billion to cover users' funds. Binance had published proof that it held enough cryptocurrency to cover customer balances before the theft.
Why it matters
Proof of reserves measures whether an exchange holds enough assets to cover customer balances. Gate's proposed test focuses instead on whether those assets are stored offline, beyond the immediate reach of a hot-wallet breach.
Gate says 88.26% of its total assets are in cold storage and 11.74% in hot wallets. Its latest reported reserves totaled $8.69 billion, or 118.49% of customer assets. Some cold-storage assets include stocks and U.S. Treasuries held under independent custody.
Market impact
The standard offers customers and institutions another measure for assessing exchange custody, but Han acknowledged it cannot verify passwords, private-key management or access controls. It also does not eliminate the trade-off between security and fast withdrawals.
Gate wants other exchanges and regulators to consider adopting PoSEC, though Han stopped short of calling for a legal requirement.
Frequently asked questions
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How does Gate's proposed test differ from proof of reserves?
Proof of reserves measures whether an exchange holds enough assets to cover customer balances. Proof of Security tests whether offline assets alone could cover those balances.
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Has Gate's cold-storage coverage figure been independently verified?
Gate says its figure of 104.58% is undergoing an independent audit.
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How are Gate's assets split between cold and hot storage?
Gate says 88.26% of its total assets are held in cold storage and 11.74% in hot wallets.
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What security risks does Proof of Security leave unmeasured?
Han acknowledged that the standard cannot verify internal passwords, private-key management or access controls. It also does not eliminate the trade-off between security and fast withdrawals.
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What assets does Gate include in cold storage?
Gate says some cold-storage assets include stocks and U.S. Treasuries held under independent custody.
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