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Cryptocurrency lender Celsius is producing a series of experiments over the next few months that will test what it would be like for the company to decentralize some of its operations.
The centralized finance advocate (CeFi) is working with Horizen, a platform that develops and maintains the ZEN privacy token, to take a look at building a proof of reserves system using Horizen’s zero-knowledge proofs.
“The biggest challenge at CeFi is transparency,” said Nuke Goldstein, Celsius chief technology officer. “How do we show the world that the numbers we report are real?”
The backup test pilot would take the information that appears on the Celsius website and feed it from a Horizen side chain instead of Celsius’ internal servers. The app initially displayed total customer assets by coin type and eventually shared Celsius transaction data encrypted by Horizen’s zero-knowledge-proof toolkit so as not to reveal customers’ personally identifiable information.
That said, the reserve test would not give customers a glimpse of which portion of Celsius’ loan portfolio is unsecured; what part of depositors’ funds was invested in derivative contracts rather than loans; o the amount of collateral pledged by borrowers that is re-mortgaged (ie lent) by Celsius.
Nic Carter, co-founder of Castle Island Ventures and Coin Metrics, has written extensively on the proof of reserves and is asking every cryptocurrency custodian to take the transparency measure.
“Since I’ve never seen proof of reserves for a lender before, it’s hard to conceptualize what they’re trying to do,” Carter said via email. “The ZK tests for PoR are familiar to me, but they are a bit black. I’ve never seen them deployed in nature. “
Celsius failed to provide a wireframe of the concept. CTO Goldstein added:
“The full implementation will automate reserve tracking directly from blockchain feeds and maintain the privacy of individual accounts so that account data cannot be decrypted.”
The company will begin offering these solutions first 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 will bring ideas and technology together so 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’ll pay you.”
However, it will take years for customers to see these applications in production, Goldstein said.
“It’s a long process but these steps will bring us closer,” he said.
Update (November 2nd, 14:37 UTC): Resolves a transcription error in Nuke Goldstein’s first quote. The project focuses on CeFi transparency, not DeFi transparency.
