by Cryptocurrency investment products provider Grayscale Investments has refused to provide on-chain proof of reserves or wallet addresses to show the underlying assets of its digital currency products, citing “security concerns.”
In a November 18 tweet thread To address investor concerns, Grayscale provided information on the security and custody of its crypto holdings, saying that all cryptos underlying its investment products are stored with Coinbase’s custody service without disclosing wallet addresses.
6) Coinbase frequently performs on-chain validation. Due to security concerns, we do not make such on-chain wallet information and verification information publicly available via a cryptographic proof-of-reserve or other advanced cryptographic accounting method.
— Grayscale (@Grayscale) November 18, 2022
“We know that the previous point in particular will come as a disappointment to some,” Grayscale added, “but panic instigated by others is not sufficient reason to bypass complex safeguards that have protected our investors’ assets for years.”
Grayscale’s move comes as pressure mounts on the crypto business to introduce proof of reserve following FTX’s liquidity problems and subsequent bankruptcy.
Some Twitter users have criticized Grayscale’s view that security concerns drove its decision to withhold its wallet addresses Leave a Comment The addresses of the Bitcoin (BTC) inventor Satoshi Nakamoto are known and of higher value for attackers, “but Satoshi’s Bitcoin remains safe”.
Grayscale split a Letter co-signed by Coinbase CFO Alesia Haas and Coinbase Custody CEO Aaron Schnarch, who broke down Grayscale’s holdings by its investment products and reiterated that the assets are “secure,” with each product having its “own on-chain addresses.” ’ and the crypto always belongs ‘to the respective Grayscale product’.
Grayscale added that each of its products is a separate legal entity and “laws, regulations and documents […] prohibit the digital assets underlying the Products from being lent, borrowed or otherwise encumbered.”
Related: Nickel Digital, Metaplex and others continue to feel the effects of the FTX collapse
Known for its Grayscale Bitcoin Trust (GBTC), a security that tracks the price of Bitcoin, Grayscale also has products that track the price of other cryptocurrencies such as Ether (ETH) and Solana (SOL).
Investor concerns come as Genesis Global, which acts as the liquidity provider to GBTC, announced on November 16 that it had halted withdrawals citing “unprecedented market turbulence,” prompting significant withdrawals from its platform that are exceeding its current liquidity exceeded.
Genesis is part of crypto-focused venture capital firm Digital Currency Group (DCG), which also owns Grayscale. GBTC is trading at a discount of almost 43% to its NAV, in part due to investor speculation about GBTC’s exposure to Genesis.
