Proof of reserves

Proof of reserves is a way for a crypto exchange or custodian to show it actually holds the assets it says it's holding on behalf of customers. It matters to depositors because it offers some evidence against the risk of a platform lending out or losing customer funds without telling anyone. Typically an exchange publishes wallet addresses and a cryptographic snapshot of balances, sometimes paired with a Merkle tree so users can check their own account is included in the total. For example, after FTX collapsed in November 2022, several exchanges including Binance and Kraken published proof of reserves reports showing Bitcoin and Ethereum holdings matched or exceeded customer balances. It's not a full audit though: it usually skips liabilities, so it can't rule out hidden debts sitting alongside the reserves.