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Expanding Chainlink’s Proof Of Reserve To “Proof Of X”

Yesterday, Chainlink co-founder Sergey Nazarov joined Real Vision’s Ash Bennington and Jeremy Varlow to discuss Chainlink’s Proof of Reserve (PoR) as a solution to crises like the FTX collapse. The conversation detailed current use cases for PoR and explored how the concept behind PoR might be expanded to satisfy consumer demand for cryptographic truth related to other aspects of counterparty risk.

As Nazarov previously explained in an interview with Nasdaq TradeTalks’ Jill Malandrino, “What Proof of Reserve would have done in [the case of FTX] is it would have proven in real time how much value the exchange had and what form that value took. And so depositors wouldn’t have been surprised to learn what was backing their deposits and therefore they wouldn’t have engaged in a bank run.”

As Nazarov explained to Bennington, PoR cryptographically proves one crucial piece of truth among a number of factors that go into managing counterparty risk. In terms of FTX, Nazarov said PoR “wouldn’t necessarily prove everything that relates to their solvency, but it would prove enough to avoid this exact same situation.”

Real Vision’s Jeremy Varlow and Ash Bennington interview Chainlink co-founder Sergey Nazarov about Chainlink’s Proof of Reserve.

He emphasized one of the biggest guardrails in utilizing PoR is making sure that “people don’t misunderstand what a Proof of Reserve implementation is proving to them.” While PoR can be used to create cryptographic proof about the number of assets custodied by a certain institution, it doesn’t, for example, prove anything about that institution’s liabilities. 

Nazarov described PoR as one critical tool in what he believes will ultimately become an entire toolbox for proving a variety of cryptographic truths. 

“I think what people should consider is: ‘What is getting proven to me and what isn’t getting proven to me? What do I know about the things getting proven?’”

He predicted that the answers to these questions will create demand for cryptographic truth about “various measures of solvency.”

“There’s a whole world of ‘proof of x’ that provides very similar value to Proof of Reserve that people simply haven’t woken up to yet, because there hasn’t been an event that makes them worried about managing the risk,” he said.

According to Nazarov, “The reality of what proof of x develops next is a consumer-dependent question.” 

He said the Chainlink Network, which reached $6.6 trillion in Transaction Value Enabled (TVE) this year, will develop oracle solutions in direct response to user demand. 

“So if consumers realize the risk they’re concerned with is not just assets, but also liabilities, well then proof of liabilities is something that we’re going to heavily accelerate. And then if they realize that what they really care about is proof of solvency within a certain level, then that’s what will get accelerated.”

Watch the full conversation.

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