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Proof-of-reserves dashboards still may not show exchange solvency

While cryptographic checks can confirm an exchange controlled certain wallets at a given time, they may not address how much the exchange owes, whether assets are pledged, or whether the right legal entity is repaying customers.

Reported · Written up by our desk · Market Structure

CryptoSlate argues that four years after FTX collapsed, crypto exchanges have improved proof-of-reserves tooling, but the standard remains limited for assessing solvency. The verification process can show that a customer’s balance was included in a reserve dataset and that the exchange controlled enough assets to cover balances represented in that proof.

The outlet says many customers interpret reserve dashboards as a final, comprehensive statement of financial health, but the evidence typically proves control at a specific moment, not whether the exchange can meet broader obligations. A deeper review would need to consider the company’s obligations, ownership structure, and access to funds, areas that proof-of-reserves often does not quantify.

CryptoSlate notes that the industry accelerated proof-of-reserves disclosure after the November 2022 FTX collapse, when Binance founder Changpeng Zhao urged exchanges to publish wallet evidence. Exchanges adopted approaches such as Merkle trees, which convert customer balances into cryptographic hashes and combine them into a single root that customers can use to verify inclusion without accessing other customers’ balances.

The article also highlights that newer cryptographic methods, including zero-knowledge proofs, can confirm calculations followed set rules while keeping individual balances private. It adds that demonstrations of wallet control and reserve inclusion do not necessarily establish whether all customers are captured in the dataset, how much an exchange owes lenders, whether displayed coins are pledged as collateral, or whether the company controlling the wallets is the legally required party to repay customers.

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