The collapse of FTX and subsequent shocks in the crypto ecosystem made “Proof of Reserves Explained” not just a buzzword, but a foundational element for rebuilding trust. Exchanges scrambled to prove that customer deposits matched—or ideally exceeded—on‑chain reserves, addressing the critical question: What is Proof of Reserves in crypto?
What Is PoR in Crypto & Why It Matters
At its core, Proof of Reserves (PoR) is a cryptographic process where an independent auditor—such as Hacken—verifies that an exchange’s on‑chain holdings are at least equal to the total liabilities owed to users. The process typically involves two steps: snapshotting user balances (Proof of Liabilities) and adding wallet balances (Proof of Reserves). Only when both are published can users confirm full asset backing.
This method directly addresses the pressing question: Can PoR prevent exchange insolvency? While it doesn’t protect from all risks (e.g., hacking or misappropriation), it ensures funds aren’t being lent or double-counted behind the scenes—a vulnerability that sank FTX.
How Does the PoR Audit Process Work?
1. Data Collection and Liabilities: The exchange compiles user balances—such as USD or BTC—hashing each user’s data into leaf nodes.
2. Merkle Tree Compilation: These hashes are placed in a Merkle tree, with a final root representing total liabilities.
3. On‑chain Asset Verification: The auditor confirms ownership of key hot and cold wallets by signing or spending, verifying control.
4. Cross-comparison & Reporting: Both totals are compared. If on‑chain assets exceed liabilities, the platform publishes proofs and Merkle root data for user verification.
💡Bybit’s January 2025 Hacken audit confirmed a full 1:1 reserve ratio across 40 asset types, including BTC, ETH, SOL, USDT, USDC—restored within 72 hours after a major security breach—demonstrating both How PoR protects crypto users and strengthens trust.
The Benefits: Trust, Transparency & Resilience
✅ User confidence and protection: Seeing verifiable data reassures investors that their funds are safeguarded—not floating on unrecoverable loans.
✅ Enhanced exchange reputation: Audits differentiate platforms in a crowded market—Kraken’s March 2025 Merkle‑backed report showed Bitcoin reserves at 114.9%, emphasising responsible stewardship.
✅ Regulatory alignment: Some regulators are moving toward formal PoR, with transparent models ready for compliance and licensing.
✅ Crisis preparedness: Over-collateralization—like BTCC’s 152% coverage in May 2025—provides a buffer for mass withdrawals or unexpected events.
✅ Transparency solutions at scale: On‑chain or zk‑SNARK-enhanced PoR (used by Gate.io and OKX) allow users to verify inclusion without exposing personal data.
Real-World Examples of PoR Adoption
Bybit has led the charge since mid-2024. Hacken’s monthly audits confirm a consistent >100% reserve ratio. When a $1.5 billion hack hit in February 2025, emergency funding from partners (Galaxy, FalconX, Wintermute) replenished reserves and Hacken followed with a full 1:1 audit—regaining public trust within 72 hours.
Kraken’s March 2025 PoR showcased 114.9% BTC backing and full scope coverage (spot, staked tokens, margin) via user-verifiable Merkle proofs—offering transparency rarely seen on this scale.
BTCC publishes monthly Merkle-rooted reserves; May 2025 data reveals 152% backing—users can independently verify using public snapshot and root hash.
Proof of Reserves vs. Proof of Liabilities
Understanding the distinction is essential: Proof of Reserves confirms what’s on‑chain, while Proof of Liabilities reflects what’s owed to users. Both are required to evaluate full balance‑sheet health. Without liabilities, PoR can be misleading—an issue emphasized as we explain Proof of Reserves vs Proof of Liabilities in this guide.
Regulation & Industry Evolution
Regulators are taking note: PoR is becoming part of licensing criteria in various jurisdictions. While formal mandates are still emerging, platforms that embrace PoR early—the likes of Bybit, Gate, and Kraken—are well-prepared for future compliance.
Exchanges Leading in Transparency and Security
For investors focused on transparency and user safety, Bybit stands out—not only due to its robust PoR integrity but also thanks to margin trading with up to 100x leverage. With Hacken-verified audits and swift replenishment post-hack, Bybit exemplifies both crypto exchange transparency solutions and operational resilience; you can sign up and gain a welcome bonus through our link.
Similarly, BloFin, recognized in 2025 as a “top-10 safest platform,” maintains a clear 1:1 reserve structure and Merkle-tree validation—offering another reputable option for PoR-conscious users.
Meanwhile, WEEX has quietly adopted the same audit standards, combining user-friendly design with high transparency. Complement this with engagement in the Legends community at Bitcoinsensus, where you can connect with peers and deepen your understanding of on-chain audit mechanisms.
Frequently Asked Questions
1. How does Proof of Reserves help crypto investors?
By giving verifiable assurance that assets exist to back every user deposit, reducing counterparty and insolvency risks.
2. What’s the purpose of PoR for exchanges?
To increase transparency, build trust, satisfy emerging regulations, and differentiate services through verifiable financial integrity.
3. How do crypto exchanges prove reserves?
They snapshot liabilities, compile Merkle trees from hashed balances, validate wallet ownership, and publish Merkle roots for user verification—often via third-party audits.
4. What’s the difference between Proof of Reserves and Proof of Liabilities?
Reserves show asset holdings; liabilities show obligations to users. Only combined do they reveal if an exchange is truly solvent.
5. Which exchanges provide Proof of Reserves audits?
Leading platforms include Bybit, Kraken, BTCC, Gate.io, Crypto.com, OKX, MEXC, and others—all publish periodic Merkle-based audit results.
