How to read a proof of reserves

A slogan until it names a procedure

Proof of reserves is a claim that an exchange, or some other custodian, holds assets at least equal to what it owes customers. The words on a homepage do not perform that claim. A procedure does, and only for the items the procedure actually measured. This page is how to read the procedure. It does not score the exchanges in our fee table, and it does not publish a reserve ratio for any company. Our profiles copy trading fees. They are not audits.

Two piles have to be shown, on the same date. Liabilities are what the company says it owes customers. Assets are the coins and, sometimes, the bank balances it says it holds against those debts. A page that shows only a list of wallets has skipped the debt. A page that shows only a user count has skipped the coins. Either half alone is a brochure.

Liabilities and a Merkle tree

A common way to publish liabilities without printing every customer's balance is a Merkle tree. Each leaf is one account's balance, or a hash of that balance plus an identifier. Branches combine hashes until one root remains. The company publishes the root. You receive the hashes along the path from your account to the root, and you check that they combine to the published root. If they do, your balance was in the snapshot that produced that root.

That check is real and it is narrow. It shows inclusion of the balance they handed you. It does not show that every customer was given a leaf. It does not show that accounts with a negative balance, a loan, or an off-book debt were included. It does not show that the same snapshot is the one the auditor saw, unless the auditor's letter names that exact root. If you cannot find your account in the tree, the tree is not a proof about you. It might still be a proof about other people. Those are different statements.

Some disclosures let you download a verifier or run a short script against the path. Prefer a verifier whose steps you can read over a green checkmark on the company's own site. A checkmark is a picture. The hash path is the evidence. This site does not ship a verifier and has not run one against a live exchange. If you use a third-party verifier, read which root it expects, and do not paste a password or a two-factor code into it. An account id and a nonce, if the exchange gave you one, are the usual inputs. A seed phrase is never an input.

Assets and a signature

On a public chain, anyone can see the balance of an address. What they cannot see is who can spend it. The missing step is control. The usual demonstration is a message signed by the key that controls the address, or a small transaction from that address to a published destination, around the time of the snapshot. The message should name the company and the date, so an old signature cannot be reused next year by someone who no longer holds the key, and so a signature made for a different company is obvious.

Control at one moment is not an unencumbered holding. The coins can be borrowed, pledged, or owed back to another venue an hour later. A signature does not show a lien. It does not show that the same coins were excluded from a second company's snapshot taken the same week. It does not show the dollars in a bank account at all, because a bank balance is not a chain. If the disclosure mixes on-chain coins and cash, the cash half needs a bank record or an auditor's procedure, not a blockchain explorer.

Wrapped tokens and IOUs inside the asset list deserve a second look. A balance of an exchange's own credit token is the exchange owing itself. A balance of a token the exchange issued is not independent collateral for the debt the exchange owes. Bitcoin and ether at addresses the company can sign for are easier to reason about than a spreadsheet of 'strategic assets' with no ticker and no address. If the report does not separate those, you cannot add them up honestly.

The snapshot is a photograph

Every proof of reserves you can actually check is a photograph of one moment. Block height, timestamp, and the Merkle root should be on the page. A photograph from eight months ago does not describe tonight. A photograph taken after a public scare, and never repeated, describes the day they chose to sit still for the camera. Cadence matters as much as the arithmetic. A procedure that says it will be repeated and then is not repeated has told you something.

Window dressing is the reason a single block is weak even when the hashes check out. Coins can be moved in for the snapshot and moved out after it. You cannot see that from one height. You can sometimes see it if you watch the same addresses over the surrounding days, and if the company committed in advance to the addresses rather than announcing them after the balances were arranged. A commitment published before the block is stronger than a list published after. This is a reading skill, not a claim that any particular firm did or did not move coins. This site has not traced those flows.

An attestation is only its letter

An accountant's letter is a different object from a blog post. Read which firm signed, which date, and which procedures the letter says were performed. 'We agreed the amounts at the listed addresses' is not 'we audited the financial statements' and it is not 'we concluded the company is solvent'. If the letter carves out loans, related parties, or assets held at other custodians, those carve-outs are the paragraph that matters. A logo in the footer without those sentences is decoration.

Some firms have limited this work, or stopped offering it, after readers treated a snapshot as a full audit. This page does not maintain a list of which firms will still sign one. If a letter is old, or the firm later said the work was misunderstood, the letter does not become false retroactively and it also does not cover any later month. The date on the page is the date you have.

In November 2022, FTX halted customer withdrawals and filed for bankruptcy. Customers held account balances and could not withdraw them. That episode is why the phrase 'proof of reserves' became something retail readers search for. It is not, by itself, a measurement of any surviving exchange. This guide does not quote a hole, a recovery rate, or a reserve percentage for FTX or for anyone else. Those numbers move, and inventing one would be a fake precision this site refuses.

A way to read a page without doing their arithmetic for them

Open the disclosure from a bookmark you made by typing the host, not from a banner in a reply to a scared tweet. Find the date and the block height. Find the Merkle root, if they claim one, and the path for your own account. Find the list of addresses and the signatures, and read one signature far enough to see the date and the name inside it. Find the sentence about liabilities that are not customer spot balances: margin loans, earn products, and balances the company owes to other companies. If that sentence is missing, the comparison of assets to customer spot balances can be true and the company can still be unable to pay everyone.

Then read what asset types are included. Spot bitcoin is not a corporate equity stake, a private loan, or a token the venue minted. Add only like with like. If you cannot tell which is which, you do not have a number. You have a total the company added. Their total can be arithmetically correct and still mix categories you would not count as reserves.

Write down, in one line, what you actually learned. 'My account was in the tree on 1 March, and they signed for these bitcoin addresses that day' is a fact. 'They are safe' is not a fact the procedure produced. If you cannot write the first sentence, the page did not give you a proof. It gave you a reassurance.

What this site will not pretend to know

The token checker reads a contract. It does not read an exchange's liability tree, its bank, or its cold wallets. A Low score on a canonical stablecoin is about that contract's flags. It is silent on whether the venue where you bought it can pay you. The methodology page says the same thing in the language of sources and bands.

The fee sort is a published trading price. A cheap taker fee can sit on top of a custody arrangement you have not checked, and a thorough reserve report can sit on top of a painful spread. Use the fee guides for the price of a trade. Use a withdrawal for the part of the balance you are not willing to leave as a claim on the company. A wallet you control removes the need to trust this photograph and replaces it with key management. The wallet guides are that topic. Neither page is a recommendation of an amount.

Questions

If the hashes match, is the exchange solvent? No. You learned that a balance was included in a tree and, if you also checked signatures, that someone could sign for certain addresses at a moment in time. Solvency is assets against all liabilities, sustained, with room for withdrawals. A snapshot is not that.

Should I ignore a disclosure that fails the checks above? Treat a missing root, a missing date, or a missing signature as the absence of evidence, not as evidence of theft. Absence is a reason to size the balance as if you had no proof, which is the position you are actually in. It is not a rumour to post.

Does a proof of reserves replace a withdrawal? It is a reason some people leave coins on an exchange with more comfort. The coins are still a claim until they move. If the report is wrong, or stale, or silent on loans, the withdrawal you did not make is the amount exposed. The report does not execute the withdrawal for you.

Can I use the token checker on the exchange's reserve addresses? You can paste a token mint the same way you paste any mint. That report describes the token contract. It does not prove the exchange owns the address that holds the token, and it does not list the exchange's debts. Ownership is the signature on the reserve page. Debts are the liability procedure. The checker is the contract.

Why doesn't Perchance publish a reserve grade? We do not have the trees, the bank confirmations, or an engagement to test them. A grade without that work would be a costume. The profiles stay with the fees we copied and the date we copied them.