Proof of reserves (PoR) emerged after the 2022 FTX collapse as a method for exchanges to demonstrate that customer assets are fully backed. Exchanges use onchain wallet ownership proofs and cryptographic tools such as Merkle trees and zero‑knowledge proofs to show that total assets equal total liabilities, with a reserve ratio of at least 100 percent.

The PoR process consists of two parts. Proof of assets verifies that an exchange controls the wallets it claims, typically through cryptographic signatures. Proof of liabilities aggregates user balances and can be verified by each user via Merkle proofs or zero‑knowledge proofs, while independent auditors confirm the aggregate liability figures.

Limitations of PoR include its snapshot nature, which only covers onchain assets at a single point in time and does not reveal offchain or fiat holdings, hidden liabilities, or the possibility that wallet keys are duplicated. Therefore PoR alone does not guarantee comprehensive solvency.

Binance, the largest crypto exchange by trading volume, has made reserve transparency a central competitive factor. It open‑sourced its zk‑SNARK based PoR verification system, enabling other exchanges to adopt the same method. Binance’s Secure Asset Fund for Users (SAFU) holds roughly $1 billion in onchain assets, providing an additional buffer. Its disclosures show stablecoin reserves—including USDT and USDC—exceeding 100 percent, and the exchange holds the largest stablecoin reserves among peers.

Institutional participants require additional safeguards beyond PoR. They seek asset segregation to prevent commingling of customer funds with exchange assets, regulatory oversight to reduce compliance risk, and defined insolvency protections such as insurance or emergency reserves. These measures aim to address the gaps identified after the FTX failure.

The industry is moving toward continuous, cryptographically verified assurance and greater alignment with regulatory standards. Exchanges that demonstrate over‑collateralization and maintain open verification tools are positioned to earn institutional trust.