Grayscale’s Reserve Reservations

Market Meditations | November 21, 2022

One of the very few positive effects of the recent collapses and contagion has been the industry’s migration toward setting an expectation of centralised exchanges providing proof of their reserve holdings. On the surface, this seems like a good idea. In fact, it is a good idea.

Why, then, is the world’s largest digital asset manager refusing to play ball?

  • Grayscale posted on Twitter last week that it would not be posting wallet addresses to support its claim that each of its crypto products is fully backed, stating “Due to security concerns, we do not make such on-chain wallet information and confirmation information publicly available through a cryptographic Proof-of-Reserve, or other advanced cryptographic accounting procedure.”
  • As a consolation, Grayscale was gracious enough to share a letter from Coinbase Custody which attested that each of its products was, indeed, fully backed.
  • Grayscale anticipated backlash from the crypto community in response to the refusal to publish completely transparent proof of reserves, but added that all of its products were set up as separate legal entities, and “laws, regulations, and documents prohibited the digital assets underlying the products from being lent, borrowed or otherwise encumbered.

As one Twitter user pointed out, bitcoin founder Satoshi Nakamoto’s address is well-known, “yet Satoshi’s Bitcoin remains secure”. Though at this point no data suggests any reason to disbelieve Grayscale’s solvency, the reticence to provide proof of reserves isn’t doing much to assuage anxiety.