The CEO of Binance, Changpeng “CZ” Zhao, expressed his thoughts on “two huge lessons” to learn from the present FTX disaster in response to the collapse of the FTT/USD and the possibility of the crypto platform FTX going bankrupt, two issues that are rattling the cryptocurrency industry this week.
Zhao did express his views in a tweet yesterday night in response to the “liquidity crisis” experienced by FTX, which led to a provisional offer from Binance to purchase FTX.
According to CZ, if you “operate a cryptocurrency business,” you “should never use a token you developed as collateral” and “should not borrow”:
Two big lessons:
1: Never use a token you created as collateral.
2: Don’t borrow if you run a crypto business. Don't use capital "efficiently". Have a large reserve.
Binance has never used BNB for collateral, and we have never taken on debt.
Stay #SAFU.🙏
— CZ 🔶 Binance (@cz_binance) November 8, 2022
He said that Binance, on the other hand, has never committed debt and has never utilized the BNB cryptocurrency it created as security.
A few hours earlier, Zhao stated in a tweet that all cryptocurrency exchanges should demonstrate their liquidity reserves since, unlike traditional banks, crypto exchanges shouldn’t use fractional reserves.
He said Binance would shortly release reliable information about its reserves:
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
The crypto community immediately endorsed this concept. In response, Chainlink CEO Sergey Nazarov tweeted that a proof-of-reserves system “is becoming the new industry standard” and may provide investors with a clearer view of the solvency condition of a trading venue or financial business.
“It is obvious that the new industry standard for proving the creditworthiness of trading platforms and financial institutions is cryptographic evidence. A crypto-backed financial system that starts in crypto and transitions into traditional finance is best shown by Proof of Reserves, the author argued.
In a November 8 (NYSE:TWTR) Twitter post, cryptocurrency exchange OKX also revealed intentions to introduce a Merkle tree-based proof-of-reserve verification mechanism, which they view as a “essential step” in creating “baseline confidence” in the sector.
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