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DeFi Gets Larger Thanks to Proof of Reserve Concept

Decentralized finance (DeFi) has grown exponentially this year and is becoming more popular on a regular basis.

DeFi Is Heading for the Stars

One of the big things behind the growth of DeFi is Chainlink, which has become one of the largest cryptocurrencies available in the digital world today. At one point, Chainlink (LINK) was in 12th place when it come to the arena’s largest digital assets, but now, the currency has a total market cap of several billion and has moved into fifth place, marking one of the biggest jumps in crypto history.

Now, Chainlink is set to get even bigger thanks to Bit Go, which is unveiling what it’s calling the new “proof of reserve” mechanism. This new method is designed to assist in the pushing of transparency and improve the technology behind several DeFi platforms and assets.

Sergey Nazarov – co founder of the Chainlink protocol – commented in an interview:

I think the concept of proof of reserve generally is really about proving that an underlying asset somewhere is in a certain state, and that proof is very fundamental to how financial systems works, so for example, the 2008 financial crisis. The way that financial crisis came about was there was a disconnect between the actual underlying value of an asset and [the market]. That disconnect [lead to] a large financial crisis, but it also made various other collateral like mortgages difficult to be used. What proof of reserve does is it makes a form of collateral much more bulletproof. If there is another market correction like 2008, it will be around the solvency and the underlying value of assets and the proof of that, and then a system like proof of reserve will become very in demand in my opinion because it will be a system that can prove to people that their underlying assets are consistently in a certain state.

Keeping All Assets Safe

He is confident that proof of reserve could ultimately be used not just in the crypto space but in the world of traditional finance as well. He believes that the concept can be put towards making assets of any kind safe and secure for investors regardless of how they bank. He states:

I think this is a larger trend of how oracles relate to generating collateral, and collateral underpins a lot of DeFi and a lot of the ability to generate interest… Proof of reserve can really expand to generate for people proof about various collateral in a way that makes it useful for DeFi.

Proof of reserve is being tested out by a trading platform known as Bit Go, which is using the concept to secure a cryptocurrency known as WBTC. Bit Go is one of the first systems to ever bring bitcoin to the Ethereum blockchain.

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