In Part 2 of our inaugural series, we will dig deeper behind the motivations and design of our PofBS framework, by sharing some of the most frequently asked questions from Evers who heard about PofBS for the first time.
Q1: Why do we need PofBS in the first place? Isn't xyz CEX's Merkle Tree Proof of Reserve (PoR) good enough?
A1:
PoR is good...for nothing really.
Let us explain:
Exchanges have a fiduciary duty to safe-guard the deposited assets of their customers. This can be proved if, and only if:
Total Exchange Assets (A) >= Total Exchange Liabilities (L), at all times
The problem with CEX PoR is that while total exchange assets may be verified, total exchange liabilities - especially any off-chain/off-balance-sheet liabilities - are not. In fact, because of the inherently off-chain nature of CEX, we will never have certainty on total exchange liabilities.
It's like we are trying to prove (A >= L), but only have complete information on A and never L. That's not a particularly useful proof, is it?
At everything, we realize the only way to prove (A >= L) is to fully reveal both A and L through an on-chain Proof of Balance Sheet. All user assets are held in our smart contract, and the smart contract codes dictate that every dime held there belong to users (and no one else).
Now that's what we call a proper proof.
Exhibit 1: Seeing (Everything) is Believing
Q2: What about DEXs? Aren't they on-chain and completely transparent anyways?
A2:
I know right? Somebody ought to have done it with one of the many DEXs out there - but alas, that's not the case either.
There is a common misconception that simply having an on-chain smart contract is the same as being transparent. We have traded on all the major derivatives DEXs controlled by smart contracts. Unfortunately, because these DEXs rely on the blockchain to handle both trading and custody, their smart contracts inevitably become quite bloated and complex. An ironic result of that complexity is that, in almost all cases even the simple act of querying user account balance has proven to be anything but.
Simply put, an on-chain blackbox is...still a blackbox.
That is why in designing everything Exchange, we want to offload all the complex calculations related to trading/accounting/risk management/etc to the off-chain engine, so that the on-chain smart-contract can focus on doing one thing only - custody of user assets. In this way, the everything smart contract becomes an on-chain glassbox. An added bonus of having a simple smart contract is that simpler codes are more secure because of the smaller attack surface.
Q3: What else can I do with PofBS?
A3:
In addition to verifying the honesty of everything Exchange, PofBS actually has a pretty interesting use case.
With verifiable on-chain balance records, we can establish a true credible trading performance Leaderboard. We call those who made it to the top... "Mount Evers".
Wanna impress your friends with your trading prowess? Now you don't need to do screenshots, just send them the link to our Leaderboard!
For professional traders, there is no better advertisement than a publicly verifiable trading track record as well.
(And don't worry about your secret trading techniques being leaked, we will never share your trade history or positions with anyone)