Proof of Reserves
Cryptographic or audited evidence that an exchange actually holds the customer assets it claims — a post-FTX standard.
Proof of reserves is verifiable evidence that a custodial platform — an exchange or stablecoin issuer — actually holds the assets it owes customers. Approaches range from cryptographic methods (Merkle-tree proofs letting users verify their balance is included in the total) to third-party attestations of holdings.
It became a rallying cry after FTX’s 2022 collapse revealed customer funds had been secretly misused — proving that “the exchange says it has your money” is not the same as it actually having your money. Serious exchanges now publish proof of reserves regularly. Its limitation: reserves alone don’t show liabilities, so a full picture requires proof of both (proof of reserves and liabilities). Still, it’s a meaningful transparency improvement and a baseline users should expect from any custodian holding significant funds.