Proof of Reserves: Assets Held by Top Crypto Exchanges

Quick Summary:

• Proof of Reserve can mend the customers’ trust back through an independent audit proving their exchange holdings.
• The FTX fall hurt the customers’ trust as the exchange used the users’ funds to buy real estate.

Promising low fees and more trading features and pair is no longer the benchmark for centralized exchanges to win customers. With all these features, the crypto exchanges will now have to prove their holdings in a transparent way. The mantra of “not your keys, not your crypto” is getting real.

 What is Proof of Reserves?

An independent audit known as a Proof of Reserves (PoR) is carried out by a third party to make sure that a custodian actually has the assets it says it does on behalf of its clients. This auditor creates a Merkle tree, a privacy-friendly data structure that contains all client balances, using an anonymized snapshot of all retained balances.

The auditor then acquires a Merkle root, which is a cryptographic fingerprint used to identify the combination of these balances at the moment the snapshot was taken.

Exchanges with Proof of Reserves:

Binance is leading the way in exchanges getting transparent by revealing their assets through Proof of Reserves. CZ Binance tweeted that crypto exchanges should Merkle tree proofs of reserves and so will Binance, which it did.

All crypto exchanges should do merkle-tree proof-of-reserves.

Banks run on fractional reserves.
Crypto exchanges should not.@Binance will start to do proof-of-reserves soon. Full transparency.

— CZ 🔶 Binance (@cz_binance) November 8, 2022

CZ Binance along with Ethereum co-founder Vitalik Buterin has created a new protocol to prove the assets. Binance has recently revealed a preliminary report of its assets on Twitter, more data to follow.

In the meantime, here is a snapshot of our hot and cold wallet addresses taken on November 10, 2022 at 12:00am UTC.

Networks included: BTC, ETH, BSC, BNB, TRX.#BTC – 475K BTC $ETH – 4.8M ETH$USDT – 17.6B USDT#BUSD – 21.7B BUSD$USDC – 601M USDC#BNB – 58M BNB

— Binance (@binance) November 10, 2022

The Analytics websites like Coingecko have already implemented a section where users can check which exchanges are showing their reserves data along with trust score. 

The data is taken from DeFilama and Nansen Ai to show the trust score and reserve data availability. currently, here are the top 10 exchanges listed on Coingecko and their data.

#	Exchange	Trust Score	Reserve Data	24h Volume (Normalized)	24h Volume
1	Binance Centralized	10	Available	₿372682.03	₿661003.6
2	Coinbase Exchange Centralized	10	Unavailable	₿77974.14	₿77974.14
3	KuCoin Centralized	10	Available	₿44902.81	₿84716.66
4	OKX Centralized	10	Available	₿32496.37	₿44892.1
5	Bybit Centralized	10	Available	₿26260.42	₿26260.42
6	Kraken Centralized	10	Available	₿24233.88	₿36589.87
7	Crypto.com Exchange Centralized	10	Available	₿19308.39	₿19308.39
8	Huobi Global Centralized	10	Available	₿13714.73	₿13714.73
9	Binance US Centralized	10	Unavailable	₿11733.54	₿12245.01
10	Bitfinex Centralized	10	Available	₿6557.62	₿9312.36

Conclusion:

To start with, Proof of reserves is great but not the end goal to protect its users. Exchanges need to improve their trust score with proof of liability, audits, and RoR. However, the direction is pretty much clear now. Measures should also be taken at the users’ end to ensure another FTX doesn’t happen.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.