Cryptocurrency exchange Binance will soon initiate the process of providing proof of reserves, to ensure complete transparency, the firm’s CEO and co-founder Changpeng Zhao on Tuesday said, hours after he announced the acquisition of rival exchange FTX.
“All crypto exchanges should do Merkle-tree proof-of-reserves. Banks run on fractional reserves. Crypto exchanges should not,” Zhao tweeted.
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In a sudden twist to the FTX saga, which was on the verge of facing a liquidity scare after Zhao announced offloading FTX Tokens (CRYPTO: FTT) over the weekend, Sam Bankman-Fried on Tuesday revealed that the two powerhouses of crypto trading have reached an agreement, where Binance will acquire FTX.
Amid the tug-of-war between the CEOs of both exchanges, the price of the FTT tokens fell as much as 85% to $3.15, from the $22.24 levels that the token traded a day earlier.
Also Read: Binance To Acquire FTX.com As It Faces 'Liquidity Crunch': Here Are The Early Details
What Is A Merkle-Tree?
Data synchronization and verification are two uses for the sort of data structure called a Merkle tree, also known as a hash tree.
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Each non-leaf node of the tree data structure is a hash of its child nodes. It uses hash functions to preserve the integrity of the data.
Applications Of A Merkle-Tree
In distributed systems where the same data needs to be present in various locations, Merkle trees can be very helpful. They can also be used to check for contradictions.
Merkle trees are therefore extensively used in blockchain and Bitcoin (CRYPTO: BTC).
Catalyst For The FTT Debacle
Zhao announced in a tweet on Sunday that Binance would begin selling the last of its FTT tokens that were still in its possession. Approximately 23 million FTT tokens, valued at over $500 million, were owned by Binance, according to media reports.
Zhao said that "recent developments that came to light" were the reason why the FTT tokens were sold off, without elaborating further.
According to a CoinDesk report, FTT tokens made up a sizable portion of Alameda Research's balance sheet, the cryptocurrency trading company owned by Bankman-Fried.
Next: The FTT Debacle: Want To Cash In? Here's What Experts Said After Binance Selloff