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Sergey Nazarov Says Proof Of Reserve Should Be New Minimum Standard For Crypto Exchanges

Amid fallout surrounding the ongoing FTX crisis, Chainlink co-founder Sergey Nazarov joined Nasdaq TradeTalks’ Jill Malandrino to explain the role Chainlink Proof of Reserve (PoR) can play in preventing similar solvency problems in both the crypto and traditional financial markets. 

“What Proof of Reserve would have done in this case is it would have proven in real time how much value the exchange had and what form that value took,” Nazarov said. “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.”

Nazarov said he expects the FTX event will lead to a “massive spike” in adoption of PoR. 

“What Proof of Reserve will do is it will allow exchanges and various other financial products that are in the blockchain industry, and also outside the blockchain industry, to prove their solvency on a real-time basis rather than once a year or sometimes not at all.” 

He believes PoR should be “the new minimum standard” for exchanges and institutions in the crypto industry as well as in traditional financial markets. 

“It is an obvious solution,” he said. “Proof of Reserve would have been a fantastic solution to avoid something like the 2008 financial crisis.”

He continued, “Systemic financial risk, contagion risk, counterparty risk is actually a very fundamental problem to all financial markets. What the crypto industry is experiencing now is a fundamental financial markets problem. It’s not a security problem, it’s not a blockchain problem, it’s a financial markets problem.”

Ultimately, Nazarov views the FTX crisis as an opportunity.

“Every time there’s a hiccup in our industry, we do learn something and the industry does improve. My hope is that this hiccup isn’t too big, but even if it’s big, I think it’s the type of thing that’s going to harden what this industry is about and allow it to improve – in this case, by everyone adopting Proof of Reserve to prove their solvency to users on a real-time basis.”

Watch Jill Maladrino’s full conversation with Sergey Nazarov. 

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