OKX PoR: Using code as a constraint to break the traditional financial black box

On March 12, 2023, Silicon Valley Bank, the 18th largest bank in the United States, suddenly went bankrupt, with more than 95% of customer deposits not covered by insurance. However, just one week before the bankruptcy, its financial report still showed that its capital adequacy ratio met the standard. This crisis exposed the defects of the traditional financial trust system - regulatory lag and audit black box. At the same time, OKX has opened up a new path in the crypto industry: reconstructing the triple underlying logic of financial security through Proof of Reserves (PoR), realizing the on-chain verifiability of asset control rights, mathematical confirmation of solvency, and real-time autonomy of risk monitoring.

This is not only a technological innovation, but also a revolutionary paradigm shift in financial power relations - from "institution-defined security" to "code-constrained security", and users have changed from "passive risk bearers" to "active security verifiers."

1. Asset control: from “custodial trust” to “on-chain control”

The core of the traditional financial system is to trust institutions. When users deposit money into banks or securities firms, control is given to institutions. Such behavior is essentially to trust that institutions will not misappropriate your assets, but this trust is not a castle in the air. It relies on the dual guarantee mechanism of national credit endorsement and regulatory framework.

When a customer deposits money into a bank account, the customer is legally regarded as a creditor, and the bank actually has the right to control these funds. Most of the funds in a bank account are loaned by the bank to other banks or individuals. The bank will retain cash to meet immediate withdrawal needs according to the reserve ratio required by law, that is, the partial reserve model. In addition, the funds that customers deposit in investment banks or securities firms are in a separate account of a trusted bank - a "customer segregated account".

However, giving full control of assets to institutions or intermediaries does not mean that users' assets are free of risk of loss. In fact, traditional finance also has the risk of "turning over"!

In the traditional financial system, institutions will invest customer funds in long-term, high-risk assets to achieve profit goals. This model may trigger a chain reaction when the market fluctuates: when assets depreciate sharply, institutional balance sheets shrink, market confidence collapses, and eventually evolves into a liquidity crisis or even bankruptcy. For example, in 2023, Signature Bank suffered a run in the sharp fluctuations in interest rates due to excessive investment in crypto-related assets and long-term bonds, and was eventually taken over by regulators. Although its various indicators before bankruptcy "met regulatory requirements", liquidity crisis is still unavoidable.

It can be seen that traditional finance has always faced a fundamental contradiction between the pursuit of profits and the protection of user security, and users can only choose to fully trust the self-discipline of institutions and the layers of regulatory systems behind them (banks, insurance, and governments).

In contrast, crypto institutions are exploring another path: OKX took the lead in launching the Proof of Reserves mechanism after the FTX crisis, verifying the adequacy, liquidity, and solvency of platform assets to global users through public records that can be verified on the chain.

• ·Public holdings: The exchange discloses all cold/hot wallet addresses (such as OKX has opened asset inquiries for 22 currencies on the chain), and anyone can verify the 1:1 anchor relationship between reserves and user liabilities.

• ·Transparent capital flow: Most assets are stored in cold wallets, eliminating opaque operations and maturity mismatch operations, and effectively preventing bank runs.

Compliant crypto custodians will not misappropriate or re-lend users' crypto assets, usually maintaining a 1:1 full reserve, and will not lend or invest user assets unless the user has additional authorization. At the same time, OKX has formulated a series of data protection and account security measures to truly achieve on-chain penetration of asset control rights.

II. Evolution of financial transparency mechanisms: from statement audits to on-chain consensus

In the traditional system, the security and health of financial institutions are completely dependent on regulatory requirements (such as regular financial statements) and external audits to ensure. Banks or securities firms must strictly follow Generally Accepted Accounting Principles (GAAP/IFRS) and regularly disclose financial statements audited by the "Big Four" accounting firms to ensure that the data is true and fair. Regulatory agencies (such as the Federal Reserve and the FDIC) assess institutional risks through stress testing, on-site inspections, and monitoring of liquidity indicators (such as capital adequacy ratio (CAR) and high-quality liquid assets (HQLA)).

However, can financial statements and auditing agencies really guarantee absolute and real "security"? What are the limitations of the traditional system?

• ·Post-audit and periodic disclosure: Users can only obtain data through delayed reports and cannot monitor asset status in real time. For example, Silicon Valley Bank's capital adequacy ratio met the standard but still went bankrupt due to interest rate risk;

• ·Data opacity: The book value of traditional finance may be unfairly valued, and the audit system is also flawed.

• ·Liquidity risk: Structural problems such as maturity mismatch and excessive leverage may lead to bank runs or liquidity crises (such as bank failures).

It can be seen that the traditional financial system still has a lot of room for improvement in terms of user rights protection and systemic risk prevention and control. Users need more than just numbers on the report and inaccurate data indicators. Asset health needs a more transparent truth. Future finance requires real-time data monitoring and high asset transparency, and technology and consensus are needed to reconstruct financial rights relations.

The Proof of Reserves (PoR) introduced by crypto exchanges is a way to break the traditional limitations and build a security system that users can verify independently:

(1) Assets on the chain

• ·Open and transparent: The exchange discloses the cold/hot wallet addresses, and all reserves can be checked on the chain (OKX covers 22 currencies).

• ·Rigid payment capability: Ensure that the total reserves of the exchange ≥ the total assets of the user, and can cope with extreme runs.

• ·Self-verification: Anyone can verify whether the reserves are sufficient, without relying on delayed audit reports, to prevent exchanges from misappropriating user assets or manipulating data.

（2）Debt Verification (Based on Zero-Knowledge Proof Technology)

• ·zk-STARKs：

• ￮ Aggregate user assets into a global balance sheet to ensure that the data cannot be tampered with.

• ￮ Users can anonymously verify whether their assets are included in the balance sheet.

• ￮ Prevent exchanges from inflating or hiding debts (such as forging the number of users or asset size).

• ·Negative balance constraints:

• ￮Mathematical constraints are used to ensure that the net asset value of users is not negative to avoid the risk of liquidation.

(3) Transparent pricing of digital assets

• ·Digital assets are priced according to the real-time market to avoid the deviation between book value and real value.

• · Proof is status, which prevents the problem of ambiguous estimation models and room for maneuver.

When the reserve of each token becomes a mathematically verifiable fact, financial security shifts from passive trust to active consensus.

Third, Trust Reconstruction: From "Centralized Trust Intermediary" to "User-Active Verification"

With the application of Proof of Reserves (PoR), the focus of trust has shifted from reliance on institutions to emphasis on technology and mathematical proofs. Users no longer need to blindly trust the security of an institution, but can use verifiable data to gain risk awareness.

In the past, it was almost impossible for ordinary users to personally verify the assets and liabilities of an exchange or bank. Traditional financial transaction records are only kept in the institution's internal ledgers and regulated clearing systems and are not open to the public. The data disclosed to the market is often processed and aggregated. Only authorized regulators and auditors can fully view the bank's transaction details and ledger data.

This semi-closed and semi-transparent financial data actually weakens the user's right to know about risks. Although commercial secrets are protected, the ability to monitor systemic risks is limited to a few institutions, and users cannot penetrate and verify the real risk exposure of institutions. When a crisis breaks out, users are often the last to know and become the risk bearers.

The trust of traditional finance is built on audit reports and regulatory documents, while the encryption industry is reconstructing the security paradigm through cryptographic proofs and on-chain verifiability. The Proof of Reserve (PoR) mechanism has established a complete trust structure - verifiable assets on the chain, public wallet addresses, and user-friendly verification, which constitutes a new paradigm for asset security in the crypto era. The industry standard has been upgraded from "trust mode" to "verification mode".

PoR is a real-time dashboard for OKX asset security and a proof report of the exchange's solvency. Users do not need to rely on third-party audits, and can verify asset security through the self-verification tools provided by OKX. In addition, the complete OKX PoR code has passed third-party audits and is fully open source. Users' confidence in the security of their funds is based on verifiable facts, which not only provides users with a sense of participation and trust, but also forms a continuous supervision of the OKX platform.

Conclusion

The traditional financial system exposes not only technical defects, but also the systemic limitations of the centralized trust model - when asset security relies on the self-discipline of institutions and the post-regulatory intervention, users are essentially at the end of the risk transmission chain.

Crypto exchanges are using technology to establish structural security guarantees: the fundamental unity of asset control, payment transparency and risk controllability. On a trading platform with transparent on-chain ledgers and user-verifiable transactions, trust no longer comes from institutional credit endorsement and supervision, but from technology and consensus. Users are not only participants, but also co-builders of the risk control system.

At OKX, security is not a percentage in an audit report, but a verification right that every user can exercise. We believe that true financial security is "visible with your own eyes and verifiable with your own hands"!

Disclaimer

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