What are ‘clean’ assets
Clean assets are a term used in the world of finance and investments to describe assets that are free from any form of manipulation or misappropriation. These assets are considered to be of high quality and are considered to be a safe investment option.
In the world of cryptocurrency, clean assets refer to a trading platform’s or crypto firm’s digital assets that are held in custody on behalf of its customers. These assets are considered to be clean when a third-party analysis, such as the metric provided by CryptoQuant, determines that the reserves do not include an exchange’s native token and are made up exclusively of high-market cap “traditional” cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), and USDT stablecoin.
A recent example of clean assets is OKX’s latest Proof-of-Reserves (PoR) report which shows that the crypto exchange holds $7.2 billion in assets, none of which include its native token. According to data from the blockchain analytics firm CryptoQuant, which monitors PoR across the crypto industry, OKX boasts the largest clean asset reserves among major exchanges.
The crypto community has been pressing for exchanges to provide attestations of their holdings in the wake of the FTX collapse last November. One way to execute an attestation is via a PoR protocol that uses a Merkle Tree proof to integrate large amounts of data into a single hash and verify the integrity of the data set. OKX was among the first to use this method to prove its stability as the exchange released two PoR reports by the end of December.
In addition to providing transparency, clean assets also serve to protect users’ assets and avoid scenarios similar to what happened at FTX. OKX is also planning to use zero-knowledge-proof technology to further protect its users’ assets.
It’s important to note that the concept of clean assets is not unique to the crypto industry, but it can be applied to any asset class where there is a need to prove the authenticity and integrity of the assets in question. It’s crucial for investors to understand the concept of clean assets and to make sure that the assets they hold are indeed clean, in order to ensure the safety of their investments.
Why this is important
Proving possession of clean assets in the crypto industry can help in several ways in the future. Firstly, it can increase transparency and trust in the industry. By providing proof of reserves, crypto exchanges and firms can demonstrate to their customers and the broader community that they are holding the assets they claim to have, and that these assets are clean, meaning they are not involved in any form of manipulation or misappropriation. This helps to build trust and confidence in the industry, which is essential for its growth and development.
Secondly, proving possession of clean assets can help to prevent fraud and protect customer assets. When a crypto exchange or firm can demonstrate that they have the assets they claim to have, and that these assets are clean, it reduces the risk of customers falling victim to fraud. Additionally, by proving possession of clean assets, crypto exchanges and firms can also reassure their customers that their assets are safe and secure, which is essential for building customer loyalty and retention.
Thirdly, proving possession of clean assets can help to attract institutional investors to the crypto industry. Institutional investors tend to have a higher risk tolerance than retail investors, but they also have more stringent requirements for transparency and security. By proving possession of clean assets, crypto exchanges and firms can demonstrate to institutional investors that they are a safe and secure place to invest, which can help to attract more institutional money to the industry.
Lastly, proving possession of clean assets can help to increase regulatory compliance in the crypto industry. Governments and regulators around the world are becoming more interested in the crypto industry, and many are looking to put in place regulations to protect investors and prevent fraud. By proving possession of clean assets, crypto exchanges and firms can demonstrate to their investors that all trades and holdings are legitimate. This has been an issue that needed to be considered since the fall of FTX and the findings during the trial of Sam Bankman-Fried.
Crypto is still a very nascent technology and the players in the field are still discovering ways to make things smoother for all involved as the technology and space continue to grow we should be seeing more upgrades and innovations, for the time being having a proof-of-reserves system is a welcome addition to the space, one that many investors are glad is around-especially considering what has been going on in the crypto space lately.