Proof of reserves (PoR)

A proof of reserves is a check an exchange publishes to show that the coins in its wallets cover what it owes its customers. It has two halves: a cryptographic commitment to every customer balance, and a list of addresses whose holdings anyone can read on-chain. Divide the second by the first and you get the reserve ratio; 100% means each customer coin is backed one for one.

Proof of reserves spread after FTX failed in 2022

After FTX collapsed in November 2022, Binance, KuCoin and Crypto.com hired the auditor Mazars for such reports. On 19 November Vitalik Buterin set out a design in a post on proof of solvency: a Merkle sum tree for liabilities, and zk-SNARKs to hide individual balances. He warned that the tree covers only liabilities, one side of the books.

How a proof of reserves works

1. At a stated moment the exchange freezes a list of each customer’s net balances.
2. Each balance becomes a leaf: a hash of a salted account ID and the amount.
3. Leaves are paired and hashed upward to a single root. In a sum tree each node also carries the total beneath it, so the root shows total liabilities.
4. The exchange lists the addresses it says it controls, shown by a signed message or an auditor, and anyone can add up their balances.
5. Each customer receives the sister nodes along their branch, recomputes the hashes and checks that they land on the published root.

A worked example with four customers

The figures here are hypothetical. Ana holds 30 BTC at an imaginary exchange, Ben 50, Chloe 20 and Dan 40. The tree pairs Ana with Ben (30 + 50 = 80 BTC) and Chloe with Dan (20 + 40 = 60 BTC), then joins the two: 80 + 60 = 140 BTC at the root. With SHA-256 hashes, that root begins 3b36311b5be1.

Ana receives Ben’s leaf (50 BTC) and the Chloe-and-Dan node (60 BTC). She computes 30 + 50 = 80, adds 60, reaches 140 and the same root hash. Change her balance by one satoshi and the root no longer matches. Enter Chloe at minus 20 BTC and the root reads 100 BTC; her branch exposes it, if she looks.

On the asset side, the listed wallets hold 147 BTC, so the ratio is 147 / 140 = 105%. Suppose 20 were borrowed and must go back: 127 / 140 = 90.7%. Or say a lending arm owes 10 BTC that never entered the tree: 147 / 150 = 98%. Either way the 105% is true and misleading.

One gap the tree cannot close: if Dan is left out entirely, the root falls to 100 BTC and only Dan can notice, if he checks. The tree proves that the customers who verify are in it. It cannot prove that everyone is.

Binance’s post-hack proof of reserves

After the theft of 29 October 2026, Binance published a reserves snapshot dated midnight UTC on 31 October. CoinDesk reported coverage of 100% or more for ten assets, BTC and ETH among them. On 2 November The Block reported a completed zero-knowledge proof for the same ten assets; Binance says users can verify their balances are backed 1:1. No outside auditor is named. Our coverage of the Binance hack left one question open: co-CEO Richard Teng said the hacked hot wallet held company money, yet CoinDesk found that wallet, Binance 14, among the assets backing customers in the 1 October proof. The proof does not say which coins are operating funds.

Mazars itself paused its proof-of-reserves work for crypto clients in December 2022, CNBC reported, citing concerns about how the public understood such reports. Its Binance report of 7 December covered bitcoin only and did not show the liabilities of Binance’s lending arm.

Proof of reserves, attestation and audit are not the same

No standard defines a proof of reserves. In an attestation, an accounting firm gives assurance on one statement at one date. Tether’s third-quarter report, covered in our piece on the BDO attestation, covers its figures at 30 September 2026: $191.45 billion of assets against $183.50 billion of liabilities, a ratio of 104.3%. An audit goes further: an opinion on full financial statements over a period, as KPMG gave on Tether’s 2025 accounts.

What a proof of reserves cannot show

Liabilities outside the tree stay invisible. Coins borrowed for the day, or shuttled between exchanges so both look solvent, inflate the assets. A snapshot says nothing about the next morning, and fiat in banks cannot be read on any blockchain.

A zero-knowledge proof fixes privacy and the negative-balance trick: Binance’s circuit checks that every balance counted is non-negative and included in the total. In our reading, it proves the arithmetic on the data it is given, not that the data is complete.

Proof of reserves: questions readers ask

What is proof of reserves in crypto?

It is a published check that an exchange holds at least as many coins as it owes customers. The exchange commits all balances in a Merkle tree, lists its wallet addresses and lets each customer confirm their own balance is counted. The result is a reserve ratio for each asset, at one moment.

Is a proof of reserves an audit?

No. A proof of reserves follows no common standard and is often run by the exchange itself. An attestation adds an accounting firm’s assurance on one statement at one date. An audit gives an opinion on complete financial statements, debts included, over a full period.

How can I check my balance in a proof of reserves?

Find the record ID and Merkle leaf the exchange gives you; at Binance they sit under Wallet, then Verification. Recompute the hashes along your branch, or use the exchange’s open-source tool, and confirm you reach the published root. Check the snapshot date and which assets the proof covers.

Does a 100% reserve ratio mean my funds are safe?

Not on its own. The ratio can be correct while borrowed coins pad the assets or debts sit outside the tree. It describes one moment, and customers who never check cannot reveal that they were left out. Read it next to the exchange’s licence and how it holds customer coins.