Opinion

CoinDCX regarding Proof of Reserves and Liabilities

CoinDCX Regarding proof of reserves and liabilities

First things first, CoinDCX does not work with FTX or Alameda. We do not have any assets/exposure with FTX or any exposure to FTT, SOL. We do not rely on their liquidity provisions for any of our products. 

So the FTX fiasco has absolutely ZERO exposure and impact on CoinDCX and we’re good here.

I’m happy to let you all know and reaffirm that our highest level of corporate governance measures ensure customer funds are 100% safe and maintain user liability to assets at 1:1. We furthermore abide by the best practices of risk management, transparency and consumer protection to ensure that these user assets are very well protected. The approach followed by us is already published here in this blog.  

Financially, we also have a fairly strong cash-rich balance sheet. Additionally, the recent funding round of $140M and earlier rounds of capital raise are sufficient for the company to continue and sustain operations for at least 4-5 years even at zero revenues.

On Proof of Reserve and Liabilities:

  1. CoinDCX has an order placement system that ensures that assets bought by the users are 1:1 placed under vaults on/off-chain, especially warm/cold wallets. This ensures that for every order placed by users, CoinDCX actually buys or holds crypto assets.
  2. In our opinion, the much advocated “Proof of reserves” provides a standalone asset value, it only showcases one side of the part. There’s no visibility of liabilities. Proof of reserve without Proof of liabilities is only half the picture.
  3. So let’s take it one step ahead and ensure this with Reserves to Liabilities (R2L) Ratio: Total assets owned (on/off-chain) / Total liability & contingencies.

For example, if an exchange has $100 of assets held by users, and liabilities amount to $150, then the Reserve to Liability Ratio is 66% which is quite low. A good risk management & customer protection practice is to have at least a 100% R2L ratio.

Here is the Reserves to Liabilities ratio snapshot of the top ten assets that we hold on behalf of the users as a % of what we owe to the users.


Reserves to Liabilities ratio

As you can see from the snapshot, in aggregate we hold more than 100% of the crypto assets as custody compared against customer funds. (converted to USDT prices). And to reiterate, we do not take leverage or create fractional reserve against any user funds. We operate as an exchange in its true sense.

Next Steps

We’re working on publishing the R2L ratio periodically, along with audit certificates. More information to follow soon.

In line with other exchanges, the team is also working on evaluating proof-of-reserve for our reserve assets and publishing them in a simple dashboard, which will make things exactly how they should be- more transparent. 

Since our launch in 2018, we have always believed in supporting the Indian crypto industry in a responsible manner and strive to keep consumer protection at the core. Not having our own token, never exposing user funds to any risk,  periodical audits are some conscious calls we’ve taken as a company which are critical to our corporate governance and risk management processes, and will continue to follow them diligently. Hope these disclosures bring about the much-needed clarity and comfort to our users and the community; we did and we always will strive to keep the interest of our users and the community to the core. Let’s together make Indian exchanges proud.

Regards,

Sumit Gupta

CEO & Co-founder, CoinDCX

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