Proof of reserves
A platform's published evidence that it holds the crypto its customers are owed, usually wallet attestations plus a Merkle tree customers ca
Proof of reserves is how a custodial platform tries to demonstrate it actually holds customer coins. The demand became loud after the FTX exchange failed in November 2022 with customer funds missing, and the standard answer has two parts: evidence of assets (wallet addresses the platform controls, or an accountant's attestation) and a Merkle tree of hashed customer balances that lets each user verify their own account fed into the published total.
What it proves is real but narrow: these coins existed, and this list of balances summed to that total, on that date. Three gaps do the misleading. Assets are shown without liabilities, and coins mean little without knowing what is owed against them. The proof is a snapshot, so funds can be borrowed for the photo. And most reports are attestations under agreed procedures, which is a narrower exercise than an audit.
A concrete example of the machinery working as intended: stablecoin issuers publish the same style of report on a calendar, such as monthly reserve attestations for USDC, and readers apply the same caveats.
The question only exists where a custodian holds your coins. A balance at an address you control is checkable by anyone at any hour, which is the strongest version of the idea. Our full proof-of-reserves guide covers how to read one critically.