After FTX’s collapse revealed that the exchange had been lying about its assets for years, the crypto industry scrambled to prove that other exchanges were solvent. “Proof of reserves” (PoR) became the buzzword of late 2022 — a cryptographic mechanism that lets an exchange prove it holds enough assets to cover all customer deposits without revealing individual account details.
Binance moved first, publishing a Merkle tree-based proof of reserves within weeks of FTX’s collapse. Other exchanges followed: Kraken, OKX, Bybit, and Bitget all published their own PoR reports. Third-party auditors like Mazars and Armanino initially verified some of these reports before withdrawing from crypto clients amid scrutiny. The industry eventually settled on a combination of Merkle tree proofs (proving assets exist), liability attestations (proving what they owe), and third-party dashboards (like Nansen’s exchange tracker) that provided continuous monitoring.
PoR has real limitations. It proves assets exist at a specific moment but doesn’t prevent an exchange from borrowing assets for the snapshot and returning them afterward. It doesn’t prove the exchange has no hidden liabilities. And it requires trust in the proof methodology itself — most retail users can’t verify Merkle proofs independently. Full proof of solvency (assets minus liabilities) remains technically challenging and hasn’t been widely implemented.
Despite its imperfections, PoR represents genuine progress. Before FTX, most exchanges published nothing about their reserves and users trusted them blindly. After FTX, the expectation is that any serious exchange publishes regular PoR reports. The bar has been raised permanently. The next exchange collapse will happen despite proof of reserves, not because the industry lacked them — and that’s a meaningful improvement over the pre-FTX era where users had no tools to evaluate exchange solvency at all.
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