Exchange Proofs of Reserves & Solvency: a mechanical explanation

Quick Take

  • Proofs of reserves allow custodians to show the amount of funds they hold on-chain
  • Proofs of solvency allow custodians to show that the quantity of funds they hold on-chain exceeds their liabilities
  • Exchanges should conduct regular proofs of solvency to reduce the risk of systemic failures 
  • This is Part V in The Block Research’s Institutional Market Infrastructure Collection 
Not Your Keys… Not your keys, not your coins is a common aphorism in the cryptocurrency world. Because cryptocurrencies are bearer assets, users who store funds with a custodian lose out on seizure-resistance and self-sovereignty, two of the key benefits of cryptocurrency. The history of the space is littered with exchanges who have lost user […]

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