The crypto lender Celsius will be producing a series of experiments over the next few months that would test what it would look like for the company to decentralize some of its operations.
The pillar of centralized finance (CeFi) works with Horizen, a platform that develops and maintains the privacy token ZEN, to take a look at creating a proof of reservations system using Horizen’s zero-knowledge proofs.
“DeFi’s biggest challenge [decentralized finance] is transparency, ”said Nuke Goldstein, chief technology officer at Celsius. “How do we show the world that the numbers we report are real? “
The proof of reserves pilot would take the information that appears on the Celsius website and feed it from a Horizen side chain as opposed to internal Celsius servers. The app would initially display customer total assets by coin type and potentially share Celsius transaction data encrypted by Horizen’s unconscious toolkit so as not to reveal customers’ personally identifiable information.
That said, proof of reservations would not give customers a look what part of Celsius’ loan portfolio is unsecured; how much of depositors’ funds were invested in derivative contracts rather than loans; or the amount of collateral given by borrowers that is remortgage (i.e. loaned) by Celsius.
Nic Carter, co-founder of Castle Island Ventures and Coin Metrics, has written extensively on proof of reservations and calls for every cryptocurrency custodian to adopt the transparency measure.
“Because I’ve never seen proof of reservations for a lender before, it’s hard to conceptualize what they’re trying to do,” Carter said via email. “ZK proofs for PoR are familiar to me, but they are a little dark. I have never seen them deployed in nature.
Celsius failed to provide a wireframe representation of the concept. CTO Goldstein added:
“The full implementation will automate the tracking of reserves directly from blockchain feeds and maintain the confidentiality of individual accounts so that account data cannot be reverse engineered. ”
The company will first begin offering these solutions on the retail side of its loan portfolio, Goldstein added.
Celsius will also submit these proofs of concept to hackathons in the Celsius community.
“We’re going to present the ideas and the technology so that we can share them with the community and say, ‘Try to find the holes in there, try to find what is wrong,’ Goldstein said. “And if you find something, we’ll pay you for it.”
However, it will be years before customers see these apps in production, Goldstein said.
“It’s a long process, but these phases will bring us closer together,” he said.
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