Popular Crypto lender Celsius is planning to undertake a series of experiments in the next few months which would decentralize some of the organization’s processes and operations. As of now, Celsius is a centralized financial organization working with Horizen which is a platform responsible to develop and maintain its privacy token ZEN. With its zero-knowledge proofs, it aims to create a proof-of-reserve system soon enough.
Nuke Goldstein, chief technology officer at Celsius says:
“The biggest challenge in DeFi [decentralized finance] is transparency. How do we show the world that the numbers that we report are real?”
As of now, the Proof-of-reserves pilot initiative will take in all the information which would appear on the website of the crypto lender. It will be then fed from a Horizen sidechain relative to the lender’s internal servers. The new application which will be born out of this collaboration will throw light on the total customer assets per coin type at first. It will later spread out its services and will share Celsius transaction data which is encrypted by the Zero-knowledge proof toolkit of Horizen. This will be done so that the revelation of personally identifiable information of customers is not released.
The proof of reserves is such that it will not give its customers a peek into what portion of Celsius’s lending portfolio is unsecured. It will also not give then any inkling on what part of the depositor’s fund has been invested in derivatives contracts instead of in loans. They will also not have any idea about the amount of collateral pledged by the borrowers which are being lent out by Celsius.
Proof of reserves is a concept that has been in many discussions off late. Nic Carter, the co-founder of Castle Island Ventures and Coin Metrics has also contributed extensively to this entire system. He has also advised every crypto custody firm to adopt the new transparency measure. He said through an email:
“Because I’ve never seen a proof of reserves for a lender before, it’s difficult to conceptualize what they’re trying to do. ZK-proofs for PoR I’m familiar with, but they are a bit black-boxy. I’ve never seen them deployed in the wild.”
Meanwhile, there was no wireframe provided by Celsius for this concept. Its CTO Goldstein said:
“The full implementation will automate reserve tracking directly from blockchain feeds and retain the privacy of individual accounts so that account data cannot be reverse-engineered.”
The CTO added that it will begin offering these solutions first on the retail side of its loan books. It is also panning out details about the plans to conduct hackathons in the Celsius community.
“We’re going to wrap the ideas and technology in such a way that we can share with the community and say, ‘Try to find holes in this, try to find what’s wrong with this,’” Goldstein said. “And if you find something, we pay you for it.”
However, it will take years before the customer will be able to explore these applications because apparently, it is a long process. But it is important to follow these processes and phases because when they conduct these phases successfully it will lead to final success.