Proof of reserves

Proof of reserves (PoR) is a way for a crypto exchange or custodian to show that it actually holds the customer assets it claims. It typically combines two parts: evidence of the assets the exchange controls on-chain, such as signed messages from its wallets, and a cryptographic snapshot of customer balances, often a Merkle tree, which lets each user check that their own balance was included.

Proof of reserves became common after the collapse of FTX in November 2022, when it emerged that customer funds had been misused. Many large exchanges now publish regular PoR reports, and some Indian exchanges have also published them.

PoR has important limits. A snapshot shows assets on one day only and can be window-dressed. Crucially, it often does not show liabilities, such as loans owed by the exchange, so an exchange can hold the coins and still be insolvent. Independent audits of full financial statements give a fuller picture. PoR is helpful, but not a substitute for self-custody of long-term holdings.