Proof of reserves
Also called: PoR · proof of reserve · reserve audit
Definition
Proof of reserves is a report in which a crypto exchange shows that the assets it holds in wallets it controls are at least equal to the balances it owes its customers.
How proof of reserves works
Most proof-of-reserves reports have two parts. First, the exchange shows which on-chain wallets it controls and how much each holds. Second, it shows total customer liabilities, often with a Merkle tree so each user can check that their own balance was included. Some exchanges add zk-proofs to show no negative balances were hidden.
The resulting reserve ratio compares assets with liabilities for each coin. A ratio of 100 percent or more means assets cover customer balances at that moment.
Proof of reserves has limits. It is a snapshot at one time, it may not show debts owed elsewhere by the company, and the quality depends on who checks it. A report reviewed by an independent auditor or verifiable on-chain is stronger than a simple self-published chart.
Example
Suppose an exchange reports customer USDT balances of 2.0 billion and USDT held in its disclosed wallets of 2.1 billion. The reserve ratio is 2.1 divided by 2.0, or 105 percent. You then use the exchange's verification tool, enter your record ID, and confirm your 1,250 USDT balance is in the Merkle tree. That tells you your balance was counted, but not whether the company has other loans outside the report.
Common mistakes
- Reading a reserve ratio above 100 percent as proof the exchange cannot fail.
- Looking only at the total ratio and ignoring individual coins with lower coverage.
- Assuming an old report reflects today's position.
Learn and practise
FAQ
Is proof of reserves the same as an audit?
No. A full financial audit also reviews liabilities, debts and controls. Proof of reserves focuses on customer balances and the assets that back them.
How do I verify my balance in proof of reserves?
Most exchanges provide a verification page where you see your record ID and check that your balance is included in the Merkle tree for that snapshot.