Exchange reserves: what a proof report shows and leaves out
Exchange reserves show what an exchange says it holds, but a proof-of-reserves does not prove solvency. Check its date, auditor, and liabilities.
Vahe HakobyanEditor-in-chief
Updated Oct 6, 20263 min readFact-checked
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An exchange reserve report is a snapshot taken at a chosen time. The exchange decides which wallets and data go into it, so the report is a company statement rather than a full audit of everything.
What do exchange reserves mean?
Exchange reserves are the crypto an exchange says it holds for customers. Those coins usually sit in wallets the exchange controls. Customer balances are claims against the exchange.
How to read reserve reports step by step
Read the report in one sitting. A proof-of-reserves shows that the exchange controls certain wallets at the report time. It does not show total customer liabilities.
- 1Find the report dateCheck when the snapshot was taken. Note the date so you can compare it with later reports.
- 2Check the auditorLook for a named firm and its scope. Many reports are limited attestations, not full financial audits.
- 3List the coins coveredSee which cryptocurrencies the report includes. A report for one coin does not cover other customer assets.
- 4Look for liabilitiesFind the customer balances side. If the report does not show liabilities, treat that as a red flag.
- 5Compare reserves to liabilitiesDivide reported reserves by reported customer balances for each coin. A ratio above one can still rest on incomplete data.
- 6Spot other red flagsWatch for stale data and self-reported wallet lists. These limit what the report proves.
What should you know after reading?
Even a well presented report leaves risks outside its scope. US exchange crypto is not FDIC- or SIPC-insured like bank deposits. If the exchange fails, customer claims usually go through bankruptcy, not a government payout.
Frequently asked questions
No. Solvency also depends on total liabilities and debts that the report may not list.
It can. Borrowed coins in listed wallets on the report date can make the snapshot look larger than the exchange's own holdings.
More frequent updates are more useful than a single old snapshot. Compare report dates over time to spot stale data.
