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Proof of Reserves aims to restore trust after FTX collapse
The model relies on exchanges demonstrating their holdings, a response to the 2022 FTX shortfall involving customer deposits.
Proof of Reserves is a method for crypto platforms to show users that the assets they hold for customers actually exist, helping move away from reliance on user trust alone.
The Block notes that the approach gained urgency after FTX collapsed in 2022, when investigators found that billions in customer deposits had been diverted to an affiliated trading firm, leaving a shortfall of roughly an unspecified amount in the provided excerpt.
The resulting episode ended what The Block describes as years of complacency across much of the crypto industry, with Proof of Reserves presented as a way to provide more verifiable assurances going forward.