Huobi HTX Upgrades Reserve Proof Mechanism with Zero-Knowledge Proof Technology

As a leading global cryptocurrency exchange, it is particularly important for users to believe that their funds are safe and fully redeemable.

According to official announcements, Huobi HTX has announced an upgrade to the 100% reserve proof mechanism, adopting zero-knowledge proof technology, allowing users to verify asset security without exposing sensitive information.

As a leading global cryptocurrency exchange, Huobi HTX has made it especially important for users to believe that their funds are safe and fully redeemable. The "Proof of Reserves (PoR)" mechanism has emerged as a recognized and effective way to boost investor confidence.

As one of the earliest trading platforms to implement the reserve proof mechanism, Huobi HTX has been conducting monthly Merkle tree reserve audits since the end of 2022, publicly disclosing them to ensure that users can deposit and withdraw assets securely and at any time. Recently, following the Merkle tree reserve proof mechanism, Huobi HTX has upgraded to introduce a version of the reserve proof mechanism using ZK (zero-knowledge proof) technology, creating a better environment for secure and private digital asset trading for users.

What is Proof of Reserves (PoR)?

PoR: Proof of Reserves, similar to proof of work, is a consensus mechanism. According to this mechanism, users or third parties execute PoR to verify the existence of assets. Therefore, detailed data about the location of customer assets can be provided.

PoR can also demonstrate to customers that their assets are still in their accounts and have not been lent out. Simply put, user consensus-level trust is based on the following three points:

1. On-chain wallet assets: centralized account assets ≥ 1:1;
2. User assets are within the exchange's statistical scope;
3. The address of on-chain wallet assets is held by the exchange;

Following the Merkle tree-based PoR, Huobi HTX has upgraded to introduce a ZK (zero-knowledge proof) version of PoR. Zero-knowledge proof is an innovative cryptographic protocol that allows the prover to prove possession of certain information without revealing the actual information.

Zero-Knowledge Proof Technology Safeguards Privacy Information More Than Merkle Tree Proof

In a zero-knowledge proof system, there are two roles: the prover and the verifier. The prover possesses a secret piece of information and wants the verifier to believe that they have this information without revealing it. The prover generates a proof based on the secret information, which does not contain the actual secret information.

This proof is typically constructed through mathematical operations and can prove that the prover indeed possesses the secret information. Upon receiving the proof, the verifier checks its correctness using a predefined verification algorithm, but the verifier cannot obtain the actual secret information from the proof. If the prover passes the verification, it can be said that the verifier believes the prover has the secret information without obtaining any actual information about the secret, demonstrating the "zero-knowledge" nature of the proof.

As the trading volume of cryptocurrencies on blockchain exchanges grows, users need to confirm that the trading platform has sufficient reserves to support transactions. However, the detailed data of user assets and the specific amount of reserves are sensitive information that the exchange does not want to disclose. Zero-knowledge proof can prove that the exchange has sufficient reserves and corresponding solvency without revealing specific amounts. The proof circuit, designed with strict constraints, ensures that the final proof is derived from a rigorous calculation process, preventing proof falsification.

Adopting this advanced cryptographic technology can greatly enhance user trust in the exchange, while also increasing the transparency of exchange funds and serving as a safeguard against financial risks. Compared to traditional external audits, zero-knowledge proof does not require transferring all reserve assets to a third-party auditor, significantly reducing operational costs and financial risks. This makes reserve proof a standardized process that can be conducted frequently and disclosed regularly.

Using user data as an example:

uid, btc, eth, trx, ht, usdt, dot (expansion), usertotalnet_amount (total net U)

A: 123, 1, -1, 0, 0, 0, -100, 18000 (usdt)

B: 456, 1, 1, 0, 0, 0, -100, 20000 (usdt)

As an example of user data:

The following three important constraints must be met:

Constraint 1: The total net asset balance (U) of a single user is not negative:

asset(!neg(usertotalnet_amount[x]));

Constraint 2: The total net asset U of the exchange is equal to the sum of the total net U of each user leaf node in the process of constructing the Merkle tree:

CEXtotalnetamount = usertotalnetamount[0] + usertotalnet_amount[len - 1];

Constraint 3: Constraints during the Merkle tree construction (hash process).

merkleroothash = hash(userleafnode, merkleproofpath_node…)

These constraints are public, and any user who meets the reserve statistical conditions (generally non-zero asset accounts) can verify the proof provided by Huobi HTX, thereby believing from a cryptographic consensus perspective that the exchange's reserve calculation meets the constraints and is trustworthy.

Huobi HTX Leads Industry Transparency with More Advanced Technology and Stringent Financial Standards

According to official announcements, from the end of 2022 to the present, Huobi HTX has been regularly updating the latest Merkle tree asset proof data on the 1st of each month to ensure that customer funds have a reserve ratio of at least 1:1.

According to the latest audit results as of September 1st, the current reserve ratio of assets on the Huobi HTX platform exceeds 100%. After upgrading to the zero-knowledge proof version of the reserve proof, Huobi HTX will continue to publicly disclose the monthly asset reserve proof results, emphasizing user privacy and information security while demonstrating the platform's solvency.

It is understood that in addition to the monthly publicized reserve ratio exceeding 100%, Huobi HTX is also a trading platform that simultaneously implements open verification of Merkle trees, open verification of wallet address ownership, and open verification of on-chain assets. Since December of last year, Huobi HTX has been regularly releasing PoR reports monthly, continuously leading the industry in improving transparency.

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