How a Crypto Exchange Describes Its Merkle-Based Proof of Reserves

Summary

The document describes an exchange's proposed process for letting users and the public check customer liabilities against on-chain assets. For liabilities, it uses a Merkle tree whose leaves encode user balances by asset, with altered or obscured data intended to limit disclosure of account balances. A user can use account-specific proof information to locate their entries in a daily snapshot and verify inclusion. The exchange also describes signing and hashing steps for checking proof identifiers and retrieving liability entries.

For assets, the process compares balances in listed exchange-controlled wallets with the total liabilities in the snapshot; the exchange says the assets should exceed liabilities. The page notes that daily snapshots can differ temporarily from live balances, and excludes assets held by certain third-party custodians from its reports. It also describes a live view of margin totals as an additional transparency measure. These are the exchange's own procedures and claims; the page does not independently establish that all assets are available, that custodial exclusions are immaterial, or that snapshots capture every relevant obligation.

Key ideas

• A Merkle tree lets users check whether account-specific liabilities appear in a published snapshot.
• The described proof process uses altered balance data and unique identifiers to reduce disclosure of customer information.
• The exchange compares reported customer liabilities with balances in its listed on-chain wallets.
• Assets held by some third-party custodians are excluded from the described asset reports.
• Daily snapshots and live margin reporting offer different views and may not align exactly at every moment.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.