How Proof of Reserves Uses Merkle Trees to Check Exchange Solvency
Summary
The document explains an exchange proof-of-reserves process based on monthly snapshots of customer liabilities and balances in disclosed wallets. It describes how customer balance records are hashed into leaves, combined into a Merkle root, and checked with a verification tool so an individual can confirm that their account was included in the snapshot. It also distinguishes this point-in-time cryptographic check from a broader financial audit.
The guide claims the exchange reports reserves above its stated 1:1 policy and describes user verification steps, cold storage, and a separate protection fund. These are claims presented by the article, not independent evidence: a Merkle inclusion proof can show that a balance appears in a liability snapshot, but by itself does not establish that all liabilities were disclosed, that assets are unencumbered, or that reserves remain sufficient after the snapshot. The method therefore offers a transparency check with important scope and timing limits.
Key ideas
- A monthly snapshot compares recorded customer liabilities with balances in exchange-controlled wallets.
- Merkle proofs can let customers verify that their own balances were included in a published liability set.
- A matching Merkle root establishes inclusion in the snapshot, not a complete independent audit of solvency.
- Reserve ratios and security measures described in the article are platform claims and require separate verification.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.