coindesk.com
A cryptocurrency exchange should be able to lose everything in its online wallets without putting customer funds at risk, according to Gate founder and CEO Lin Han.
"The test is simple arithmetic anyone can check: if cold storage assets are at or above 100% of user assets, then losing the entire hot wallet still leaves users covered," Han told CoinDesk in an interview.
Gate is introducing a security standard called Proof of Security (PoSEC), which measures whether an exchange holds enough assets in cold storage, away from its internet-connected trading systems, to cover everything it might owe customers in the event of a security breach.
Gate said it had been working on PoSEC for some time as part of its cybersecurity focus, and that recent security breaches made it an appropriate time to introduce the standard publicly.
Binance last week suffered the biggest crypto heist in history, exposing the limits of existing safeguards. The exchange had published proof that it held enough cryptocurrency to cover customer balances, but some of those assets were stolen. The exchange said just days after the hack that it set aside $6.34 billion to cover users' funds.
"Proof of Reserves (PoR) shows the assets exist, and PoSEC shows how they're stored and whether they're protected," Han said.
Other major exchanges, including Kraken, Binance and OKX, already publish reports showing whether they hold enough assets to cover customer balances. However, Gate’s new approach goes further by measuring whether assets held outside its online trading systems could cover balances even if its hot wallets were stolen.
Gate says its cold storage coverage stands at 104.58%, with 88.26% of total assets held in cold storage and 11.74% in hot wallets. Its latest reported reserves totaled $8.69 billion, or 118.49% of customer assets, Gate added.
Han said the figures are undergoing an independent audit. Some cold storage assets include stocks and U.S. Treasuries held under independent custody.
"Our hot wallet exposure is covered by our excess reserves, the amount we hold above user assets," he said.
The new security standard comes a month after Gate rebranded around Gate Money, an app that combines crypto trading with savings, asset conversion and card payments. Han told CoinDesk in October that Gate, which has more than 60 million users, wants to reach people who do not normally trade crypto. “We want to provide this product to a wider range of customers,” he said.
