Without providing evidence of reserves, the $1 billion asset management company has been attempting to reassure owners and investors that their money is secure. The corporation has been attempting to calm investor anxiety on Twitter by assuring them that the legislation protecting its many entities would prevent an FTX-level calamity. Grayscale refuses to disclose its cryptocurrency holdings, citing security concerns, in contrast to other crypto corporations who have been rushing to do so.
Through an impartial auditor, the proof of reserves methodology can determine how much money is held by a cryptocurrency exchange or platform. In a method known as the Merkle Tree methodology, an exchange employs the services of a third-party cryptocurrency auditor to reveal that it has assets on its balance sheet as per the customer holdings.
The Merkle Tree method has significant security weaknesses, according to Ethereum co-founder Viralik Buterin. He emphasized that although it is helpful for establishing responsibility, it raises privacy issues. He recommends ZK-SNARKs offer exchanges as a better way to show reserves and liabilities.
According to Grayscale, every one of its products is separately registered and subject to regulation. The team also disclosed that Coinbase’s custody facility is where all of the cryptocurrency that underpins its investing products is kept. The sole licenced and publicly listed cryptocurrency exchange in the US, Coinbase, frequently carries out on-chain validation.
The business claims that the ongoing validations carried out by Coinbase as custodian are adequate to calm fears. Addresses or any other information designated confidential, however, wouldn’t be made public in order to prevent any changes to the products’ nature.
Additionally, a statement signed by CEO of Coinbase Custody Aaron Schnarch and CFO Alesia Haas has been made public and states that all of Grayscale’s holdings and assets are secure because each product has its own on-chain address.
Investors should also be concerned because Genesis Global was acting as the Grayscale Bitcoin Trust’s liquidity provider (GBTC). Investors are speculating on whether Grayscale will be the next domino to fall as Genesis has stopped withdrawals due to its exposure to FTX and is edging closer to declaring bankruptcy.