How Deribit’s Modified Merkle Proof Verifies Crypto Reserves

Summary

This document explains Deribit’s approach to publishing proof of reserves and customer liabilities. It describes a modified Maxwell-style method that uses a binary Merkle tree of cryptographic customer balance entries, with alterations intended to protect privacy. Customers can use account-specific information and a proof identifier to locate their entries in a daily snapshot, then sum those liabilities and compare them with disclosed on-chain assets controlled by Deribit.

The verification outline covers signed proof identifiers, hashing table seeds with identifiers, deriving liability-entry keys, and checking that aggregate liabilities do not exceed reported wallet reserves. It also describes exclusions for assets held by certain third-party custodians, additional reserves, and a separate live view of margin locked against open positions. The document gives a technical verification procedure but does not independently validate the exchange’s claims. Daily snapshots can differ from current balances as markets and customer portfolios change, and assets outside Deribit’s direct control are not included in the listed wallet data.

Key ideas

• A modified Merkle tree lets customers check that their account liabilities appear in published snapshots.
• The procedure derives liability entries using account proof identifiers, table seeds, and cryptographic hashes.
• Aggregate reported liabilities are compared with disclosed on-chain reserves controlled by the exchange.
• Some third-party custodied assets are excluded from the listed asset proof.
• Daily snapshots and market movements can create short-lived differences between reported and current balances.

Tags

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