Custody and cash · 20 / 86 · 2 min
Proof of reserves
A proof of reserves tries to show that an exchange holds assets. It is a snapshot, not a full audit, and it often says little about what the firm owes.
Assets without liabilities are an advert. A report is a moment, not a promise about tomorrow.
A worked case
A firm publishes a reserves page the week before it freezes withdrawals. The page shows large wallets. It does not show the loan those wallets were already pledged against. Customers read the badge and leave their coins.
What it can show
It can show control of some wallets at a moment in time. Sometimes customers can check that their account was included in a list of liabilities.
What it cannot show
It may ignore debts, loans, and related companies. Assets can be borrowed for the photo and returned the next day. A report with no liabilities is an advert.
Read who wrote it, what date it covers, and whether debts are in the same document.
A photo of wallets is not a list of debts
After FTX, exchanges rushed to publish proof of reserves. The honest version shows control of wallets at a moment, and sometimes lets a customer check that their account was included in a list of liabilities. The common version shows wallets and calls it an audit. Assets without the debts, the loans, and the related companies are an advertisement. Coins can be borrowed for the photograph.
FTX had marketed itself as the safe, regulated-feeling venue. It published numbers. The numbers were not a full account of what it owed customers versus what it had lent to Alameda. A reserves page that arrived later at other firms should be read with that month in mind. Who wrote it. What date. Whether liabilities are in the same document. Whether the firm paid the writer.
A badge does not withdraw. If you cannot find the debts in the same report as the wallets, you have not been shown a proof. You have been shown a picture.
Read it yourself
These links are the record. They are not a recommendation, and they are not instructions. A news story or a court paper can still be wrong about a detail. The check does not change because a famous name is in the story.
Apply the check
Open a question. The line is about this topic. It is not a verdict that anything is safe.
The firm, if the badge keeps deposits in.
Whoever scoped the report, and the firm that paid them.
The firm, the moment the wallets no longer match the debts.
Check yourself
Does a reserves report prove you can withdraw tomorrow?
No. It is a snapshot, and it may omit debts.
After this you can refuse a reserves badge that does not also show what the firm owes.