[Secondary Proposal] Open Bank Project Proposal for Proof of Reserves

Official Proposals
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Period: 1 August 2023 – 31 October 2023 (3 months)

Proposal: Open Bank Project Proof of Reserves - Proof of Concept

Amount: 30,000 USDC

Token allocation to contributors: We request up to 30,000 USDC to incentivize the dedicated team from Open Bank Project at Ethereum address 0xa3A7aA733DDdF1E89c76F0c3ff5F40908533Ad99

  • Dylan - Project Manager
  • Simon - API architecture
  • Marko - API Support
  • Cristh - Blockchain Development
  • Tobias - DevOps Support

Idea: To build a Proof of Reserves system that can retrieve both on-chain and off-chain reserves using API3 oracles.

Background

As the financial landscape evolves and decentralised finance gains traction, ensuring the accuracy and transparency of reserve holdings has become increasingly important. The API3 technology stack, known for its secure and decentralised oracles and more recent data feeds, provides an excellent foundation to build a Proof of Reserve system that offers real-time verifiability and trustworthiness.

Summary

The Open Bank Project is an official technical partner of API3. OBP is the API solution encouraging blockchain innovation in the financial services sector, particularly through the API3 Airnode.

At its core, the partnership enables banks to run an airnode to connect directly to any EVM-compatible blockchain using over 500 prebuilt banking and management API endpoints. This lets banks send open banking (account access & payment initiation) and other types of data to Web 3 applications, enabling blockchain developers to build dApps using this data.

The partnership made its debut at the Bitcoin Bankathon in El Salvador, where teams built applications that could help locals access better financial services. In this case, the airnode was also used to create direct connections between off-chain bank accounts and on-chain crypto wallets.

But with the decentralised and traditional financial worlds growing ever closer, additional use cases are appearing where off-chain data and players need to seamlessly connect to Web 3. In particular, proving both on-chain and off-chain reserves is becoming increasingly important for those dealing with cryptocurrencies, whether crypto exchange or bank.

Objectives

The primary objectives of implementing a Proof of Reserve system using API3 oracles are as follows:

  1. Transparency and Verifiability: Establish a system that enables transparent and real-time verification of reserve holdings for banks, financial institutions, and decentralised protocols. This system will instil greater trust and confidence in the financial ecosystem.
  2. Integrity and Accountability: Provide a mechanism to ensure that reserve data is accurate and reliable – minimizing the risk of related fraudulent activities, bank runs, and systemic collapses – with a view to enhancing the integrity and accountability of the financial system.
  3. Seamless Integration: Leverage API3 and OBP capabilities to seamlessly integrate the Proof of Reserve system with existing financial infrastructure and decentralised protocols, ensuring compatibility and ease of implementation.

Scope

The purpose of this R&D project is to build a Proof of Concept (PoC) to present to:

  • Cryptocurrency Exchanges
  • Banking institutions involved in crypto
  • Other interested parties

The OBP internal team will be responsible for conducting the necessary technical and market research, as well as for building the PoC.

Proposed Solution

To achieve the objectives outlined above, we propose the following steps for the creation of a Proof of Reserve system using API3 oracles:

  1. System Design and Development: Collaborate with experts in the field to design a robust architecture for the Proof of Reserve system. This system should leverage the capabilities of bank data feeds and decentralised APIs to securely and reliably fetch reserve data from participating institutions and protocols.

  2. Integration: Integrate the Proof of Reserve system with the API3 and OBP infrastructure and technology, enabling access to high-quality, decentralised data feeds. In particular, we shall utilise the security and decentralization features of first-party oracles to ensure the accuracy and integrity of reserve data.

  3. Data Aggregation and Verification: Establish secure mechanisms for participating institutions and protocols to transmit their reserve data to the Proof of Reserve system using airnodes. We shall implement cryptographic techniques to verify the authenticity of the received data, ensuring its integrity without compromising sensitive information.

Budget

The expenses are focused mainly on the remuneration of the development team for the duration of the project and a total of 30,000 USDC will be paid to a TESOBE USDC account.

Team member Role
Simon Architecture Support
Dylan Project Manager
Cristh Blockchain Lead
Developer Blockchain Developer
Marko API Support
Tobias Devops Support
Total Requested Funds 30k
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Hey Folks, the date range for this POC will be 1st September 2023 – 30th November 2023 (3 months). Obviously flexible depending on when (if) the proposal is passed!

Here is the DAO link of the proposal: https://api3.eth.limo/#/governance/secondary-82

cheers, Simon.

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good day Simon, have two questions about this proposal:

  • does OBP have any experience building something like this internally, and are there any public code repositories or other available examples?

  • Proof-of-Reserves was recently the subject of much ire because of Armanino’s auditing history of FTX combined with the lack of alternatives. Who do you generally anticipate (bank or exchange/third party auditor/other) will be the Airnode deployer that provides the data which attests to the reserves?

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Hi rAPI3r,

On the blockchain side, we’ve been working on a fully transparent stablecoin called TEuro. It’s only Work in Progress so far, but we’ve opened it today so you can have a look at the solidity code. https://github.com/OpenBankProject/TEuro . We have made a couple of OBP integrations with the Airnode already. We have lots of experience in getting data from banks in real-time into OBP.

We want to focus on a “per asset” proof of reserve approach because that’s easy to reason about. If an institution holds N assets then there would be N data sets that would contain enough information so that double counting can be avoided. In terms of users, we expect banks and exchanges to directly run the Airnodes.

We’re in the experimentation phase and welcome thoughts from the community.

Cheers,

Simon

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Interesting thank you. I am sure banks require their proofs of concept be confidential, but I don’t suppose there are any example test integrations?

Also, I assume the proof of concept in this proposal will be made open source?

I am willing to be open minded about a proof-of-reserves system where an entity attests to its own reserves but I am admittedly not sure how that will be used. Perhaps more for some attestation of a customer’s deposits?

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Hi rAPI3r,

Thanks for the follow up questions!

Regarding source code, we are an open source project so yes, the core of the PoC will be open sourced. However, there are always some parts - we call them the dynamic connectors or adapters - which are specific to each institution and this is closed source because it would otherwise reveal private table structures and interfaces and we don’t ask the banks for permission to reveal that. Anyhow, this is pretty standard SQL or SOAP code wrapped with logging and back off functionality. The craft will be in the data structures we create that the Airnode will be able to call and this will be open sourced e.g. in some new standard Proof of Reserve endpoints. Thus, the reusable parts of code are open sourced (since 2011). :slight_smile:

Attestation of a customer’s deposits could indeed be a use case. However, we will also use the PoC to clarify and explore exact use cases as well the technical and legal components. Clearly Proof of Reserve is an important topic with many actors and stakeholders involved. Our approach is to provide the open source tool combinations and data flows - and we will get input from some banking / finance experts to help us build something that will be of value to the API3 community and society at large.

Hopefully this can mark the start of a rigorous three month process to explore the Proof of Reserve in the Web3 - Open Banking / Open Finance space and demonstrate something useful!

Cheers,

Simon.