Cake DeFi, a Singapore-based DeFi company, has implemented the Merkle tree method as a way to show proof of its reserves.
The Merkle tree technique, created by Ralph Merkle in 1979, makes it possible to confirm that a piece of data is part of a set of data without presenting the entire set.
The proof-of-reserves approach uses a Merkle tree to demonstrate that a cryptocurrency exchange owns the reserves it claims to have, without revealing the exact amounts of each cryptocurrency it holds to protect the platform and its users’ privacy.
By means of its new tool, Cake DeFi customers can inspect their assets and the company’s liabilities through open access to its Merkle tree proof of reserves on its website.
The tool also enables users to run a self-audit of their own funds under the Merkle tree data structure and watch how yields are produced with real-time on-chain data about customer funds.
After the FTX disaster, Binance, Crypto.com, Bybit, and OKX have also issued Merkle tree-based proof of reserves to promote transparency, though some experts remain skeptical of their efficacy.
