Chainlink: Proof of Reserve 101

The undercollateralization of financial assets has led to global market failures. We've seen it with Lehman Brothers in 2008, and even Luna in Web3.

"History doesn't tend to repeat itself but it does rhyme..."

In which case, Chainlink Labs has developed a technology to hopefully break the cycle. Its called "Proof of Reserves" (PoR) and could be monumental for providing collateral confirmation and transparency.

Let's take a look ????

Chainlink has invented a technology called "Proof of Reserve" to automate the auditing of collateralised on-chain assets which provides smart contracts with the data needed to calculate the true collateralization of any on-chain asset backed by i) off-chain or ii) cross-chain reserves.

This might sound like jibberish so let's break this down:

On-chain = any data (or transaction) recorded on a blockchain

Off-chain = literally any data not on a blockchain e.g. BBC Weather data

Cross-chain = any data (or transaction) swapped between blockchains

So say a stablecoin like USDT claims to be 100% backed. This means that for every 1 USDT in existence, there is $1 locked in a bank account somewhere.

Well, how do we know that for every 1USDT this is actually true?

Chainlink has built its Proof of Reserve to prove the integrity of exactly that, using its oracle network to audit off-chain data (e.g. captured from tracking fiat bank accounts), to prove that in fact, this 1USDT is indeed fully-backed and secure.

But Chainlink's Proof of Reserve technology can be used on Wrapped Cryptocurrency

And what on earth does that mean?

Well, say you hold Ether (ETH). But you want to use Solana's blockchain without having your Ether being transformed into SOL (Solana's token), because perhaps you think e.g. ETH is a less volatile token to have your money in. Then you can "wrap" your ETH (WETH)

For wrapped cryptocurrency, the reserves are kept "cross-chain" e.g. there will be 1ETH held in a secure crypto wallet somewhere for every 1WETH being used on Solana to claim its 100% backed

But how can we trust that this is indeed true?

With Proof of Reserve technology, the same implications apply! ????

And Celsius, the crypto trading platform, is already integrating Chainlink's PoR to ensure wrapped cryptos on their platform are fully-backed, and highly secure with a clear audit trail. So far they have applied it to WETH and even WDOGE on the Polygon blockchain

PoR won't save the world but it's certainly a profound technology for bridging the trust gap for new crypto users from retail all the way up to institutional and even government level adoption.

Read here for more: https://chain.link/proof-of-reserve