Proof of reserves

In November 2022 a major crypto exchange collapsed with a hole in its balance sheet that customers could not see until it was too late. Within weeks, exchanges and token issuers were publishing proof of reserves. The idea is simple: do not ask people to trust that the assets are there. Show them.

How proof of reserves works

There are three common approaches, and many providers combine them:

• Onchain verification. When assets sit in public wallets, anyone can check the balances directly. The provider confirms which wallets belong to the issuer, often by having the issuer sign a message with each wallet's key.
• Offchain attestation. For assets held with banks, brokers or exchanges, an independent firm checks statements or connects to those institutions' systems and reports the balances.
• Liability proofs. To show that reserves cover what is owed, some systems publish a Merkle tree of customer balances, so each customer can confirm their own balance was included without seeing anyone else's.

Reserve data can also be published onchain as a feed, such as Chainlink's Proof of Reserve. Smart contracts can then react on their own, for example by pausing the creation of new tokens if reserves fall short of supply.

A simple example

A dollar token has 50 million tokens in circulation. Its proof of reserves page shows 50.4 million dollars of collateral across named wallets and accounts, updated every hour, next to a token supply read directly from the blockchain. A holder can compare the two numbers, check that the listed wallets match their onchain balances, and scroll back through the history. If reserves dipped below supply last Tuesday, that shows up too.

What it does not prove

• Other liabilities. A platform can hold every asset it claims and still owe money elsewhere.
• Encumbrance. Assets can exist and still be lent out, pledged or otherwise tied up.
• Quality and access. A balance shows that something exists, not that it can be sold quickly at full value or reached in a crisis.
• Continuity. A snapshot shows one moment. Assets can be borrowed for the day of the check and returned afterwards, which is why continuous reporting says more than a monthly attestation.

How to read one

Ask who runs it and whether they are independent of the issuer. Check how often it updates and whether the history is visible. Compare reserves with the circulating supply, not with a marketing figure. And read what is in scope: which assets, which chains and which accounts are counted, and which are not.

Risks and limits

Proof of reserves is one layer of trust, not a replacement for the others. It works alongside smart contract audits, runtime monitoring and a clear account of how the assets are used. A token can pass every reserve check and still depeg if markets panic, and a reserve report is only as good as the data sources it reads.

Tori Finance publishes proof of reserves by Accountable at tori.accountable.capital, where anyone can check the reserves behind trUSD, Tori Finance's synthetic dollar, which is collateralized by USDC/USDT. It sits alongside smart contract audits by Sherlock and Nethermind and runtime monitoring by Hypernative.