Gate introduces Proof of Security standard for exchanges to cover customers after a hack
Gate says exchanges should survive the loss of their online wallets
Gate, a crypto exchange where users trade digital assets, has introduced a new standard called Proof of Security, or PoSEC. Founder and CEO Lin Han said an exchange should be able to lose all assets in its hot wallet, a wallet connected to the internet, without putting customer funds at risk.
PoSEC measures whether assets held in cold storage, kept offline and away from online trading systems, are enough to cover what an exchange owes customers. Han described the test as simple arithmetic: if cold storage is at or above 100% of user assets, customer balances would still be covered after a hot wallet theft.
Gate said it had been working on the standard for some time, and that recent security breaches made the timing right to introduce it publicly.
The figures Gate has reported
- Gate said cold storage covers 104.58% of customer assets.
- It said 88.26% of total assets are in cold storage and 11.74% are in hot wallets.
- It said its latest reported reserves totaled $8.69 billion, or 118.49% of customer assets.
- Gate said the figures are undergoing an independent audit.
- Some cold storage assets include stocks and U.S. Treasuries held under independent custody.
Han said hot wallet exposure is covered by excess reserves, the amount held above user assets.
How this differs from proof of reserves
Proof of Reserves, or PoR, shows that an exchange holds enough assets to cover customer balances. Han said PoR shows the assets exist, while PoSEC also shows how they are stored and whether they are protected.
The source article said other major exchanges, including Kraken, Binance and OKX, already publish PoR reports. Gate’s approach goes further by checking whether offline assets alone could cover balances if online wallets were stolen.
The proposal follows a record theft at Binance last week. The article said Binance had published proof that it held enough crypto to cover customer balances, but some of those assets were stolen. Binance said days after the hack that it set aside $6.34 billion to cover users’ funds.
What the new standard does not cover
Han acknowledged that PoSEC cannot verify internal passwords, private-key management or access controls. These are the types of weaknesses hackers often exploit.
The standard also does not remove the trade-off between security and fast withdrawals. Han said it does not necessarily eliminate that trade-off, but makes it manageable.
What is confirmed and what is still unclear
Confirmed from the source material are Gate’s introduction of PoSEC, Han’s explanation of the test, and the fact that an independent audit of Gate’s figures is underway.
The percentages for Gate’s cold storage and reserves are Gate-reported figures. They have not been confirmed in the supplied material because the audit is still in progress.
Why this matters for customers
Han said that once the number is public, users and institutions can decide what they are comfortable with. Gate wants other exchanges and regulators to consider adopting PoSEC, although Han stopped short of calling for a legal requirement.
The standard comes a month after Gate rebranded around Gate Money, an app that combines crypto trading with savings, asset conversion and card payments. Han said in October that Gate, which has more than 60 million users, wants to reach people who do not normally trade crypto.
What happens next
The independent audit of Gate’s reported figures is underway. No timeline for the audit or for wider adoption by other exchanges was given in the supplied material.
Sources
Newisty Editorial Team covers technology, cryptocurrency, digital products, online platforms, developer tools and the wider digital economy. Our content is researched from official sources, company announcements, public documentation, market data and other primary or reputable sources. Articles are reviewed and edited before publication for clarity, accuracy and useful context.