What is Proof of Reserves? Is it enough?

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Also known as Proof of Funds, this method is currently the most popular form of “proof” being shared to provide transparency around the assets they claim to hold under their custody. This is achieved by providing a list of wallets where the exchange says they hold funds under custody, also referred to as their reserves.

 

Is it enough?

The Proof of Reserves shared by most exchanges isn’t enough to grant their clients the transparency and trust they deserve for the following reasons:

  1. It doesn’t prove actual ownership and control of the keys to those wallets. Simply pointing out wallets with assets doesn't mean that the exchange holds the keys to move funds out of those wallets.
  2. It doesn't prove that these reserves are enough to cover liabilities. Even if the exchange owns the keys to move funds off of the wallets it lists, if the reserves are smaller than the liabilities, the exchange isn't solvent – that is, clients can't withdraw the entirety of their funds simultaneously.

 

The Proof that Matters:

Learn more about the Proof that Matters here: 

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