Verifying Exchange Reserves with Merkle Trees and On-Chain Assets
Summary
This exchange reserve disclosure explains a method for letting customers and other observers compare customer liabilities with assets held on-chain. It describes a privacy-oriented modification of a Merkle-tree proof: account balances are split and transformed so customers can identify their own entries while the full set of liabilities can be aggregated without publishing individual balances. Customers can use account identifiers, signatures, and the published daily data to check inclusion and reproduce the relevant hashes.
The document says reserve coverage is supported when aggregate liabilities do not exceed reported on-chain assets, and describes additional reporting of assets held for margin. It also identifies important boundaries: daily snapshots can temporarily diverge from live balances, and assets held with third-party custodians are excluded from the disclosed asset file. The procedure depends on the accuracy and completeness of the published inputs and does not itself provide an independent audit of assets outside the listed addresses or custody arrangements.
Key ideas
- A Merkle-tree proof can let customers verify liability inclusion while limiting disclosure of individual balances.
- Customers can use account-specific identifiers and cryptographic checks to locate their entries in published snapshots.
- Reserve coverage is assessed by comparing total included liabilities with reported on-chain assets.
- Daily snapshots may differ temporarily from live balances as markets and customer positions change.
- Assets held by third-party custodians are excluded from the described on-chain asset reporting.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.