Proof of reserves (PoR) is a way for a crypto exchange or custodian to show that it holds enough assets to back customer balances. A complete proof has two halves: on-chain evidence of the assets it controls, and a Merkle-tree proof of what it owes customers. Without the liabilities half, a reserve report shows assets only.
Why did proof of reserves become important?
When FTX collapsed in November 2022, customers discovered that the assets behind their balances were not there. Several large exchanges responded by publishing proof-of-reserves reports, and "don't trust, verify" became a common demand from users. Ethereum co-founder Vitalik Buterin's November 2022 essay on proof of solvency set out how the cryptography can work and where it falls short.
How does proof of reserves work?
Proof of assets
The platform shows which blockchain addresses it controls, either by publishing them or by signing a message with each address's key. Anyone can then read the balances on a block explorer. Signing proves control at that moment; a published address alone shows balances but not who controls the keys.
Proof of liabilities with a Merkle tree
To show what it owes, the platform builds a Merkle sum tree. Each leaf holds one customer's balance and a salted hash of their account ID. Each parent node holds the sum of its children and a hash of them, so the root commits to the total of all customer balances. The platform publishes the root and total, and gives each customer the "branch" of nodes linking their leaf to the root. As Buterin explains, a platform that slipped in a fake negative balance to shrink the total would risk being caught by any customer in the affected part of the tree. Newer designs use zero-knowledge proofs (zk-SNARKs) to show that every balance is non-negative without revealing anyone else's balance.
Reserves are sufficient if the proven assets are at least equal to the proven liabilities for each asset.
How do you check your balance in a Merkle-tree proof?
- Find your leaf: the platform shows your hashed ID and the balance it included for the snapshot.
- Download your Merkle branch (the sibling nodes from your leaf to the root).
- Recompute the hashes and sums up the tree, with the platform's open-source verifier or your own script.
- Confirm your result matches the published root, and that your balance matches your account on that date.
What can't proof of reserves prove?
- Off-chain liabilities: loans, debts and obligations outside the customer-balance tree are not included.
- Timing: a snapshot shows one moment; assets could be borrowed for the snapshot and returned afterwards.
- Encumbrance: controlling an address does not show whether its assets are pledged as collateral elsewhere.
- Asset quality: wrapped and tokenized assets are only as good as their issuer's backing; see what BTCB is and who backs it.
- Completeness: customers who never check their leaf cannot catch missing balances.
In March 2023, staff of the US Public Company Accounting Oversight Board (PCAOB) warned investors to be cautious with third-party proof-of-reserve reports, noting that they are not audits, verify certain assets at a point in time, and likely do not address liabilities or whether assets were borrowed.
Proof of reserves vs a financial audit: what is the difference?
| Feature | On-chain proof of reserves | Financial statement audit |
|---|---|---|
| Who checks | Anyone, using public data and proofs | An independent registered accounting firm |
| Liabilities | Customer balances only, and only if a Merkle proof is published | All liabilities, including loans and other debts |
| Frequency | Continuous for addresses; periodic for liability snapshots | Usually annual |
| Main limit | Partial picture of the company | Slow, and depends on the auditor's scope |
The two complement each other: on-chain data is open to anyone at any time, while an audit tests the whole balance sheet. Neither is a form of insurance, as our guide to crypto insurance and protection explains.
How can you verify Wealtii's reserves?
Wealtii holds user fund assets 1:1 in a Gnosis Safe 3-of-3 multi-signature vault on BNB Smart Chain at 0x54dd6ADaCe8BFd8feAA9cdf1Ca8891c74FaB2583. Anyone can check the vault's holdings on BscScan at any time; the Wealtii transparency page lists the address, and our step-by-step guide to verifying Wealtii's reserves walks through the check.
Be clear about what this proves. A public vault shows the assets it holds; it does not, on its own, prove Wealtii's liabilities. Wealtii does not yet publish a liabilities proof such as a Merkle tree of customer holdings, and its reserves have not been examined by a third-party auditor. Several fund holdings are wrapped or tokenized assets that depend on their issuers. Wealtii is not regulated and has no insurance.
Frequently Asked Questions
What is proof of reserves in crypto?
Proof of reserves is evidence that a crypto exchange or custodian holds the assets it owes its customers. It usually combines public wallet addresses or signed messages that show the assets, with a Merkle-tree proof of customer balances that lets each customer check they are included in the total.
Does proof of reserves prove an exchange is solvent?
Not on its own. Proof of reserves shows assets at one moment and, if a liabilities proof is included, customer balances. It does not show loans or other debts the company owes elsewhere, whether assets were borrowed for the snapshot, or whether they are pledged to someone else. Solvency needs a full view of assets and all liabilities.
Is proof of reserves the same as an audit?
No. In a March 2023 investor advisory, staff of the US Public Company Accounting Oversight Board said proof of reserve engagements are not audits and do not provide meaningful assurance. They typically verify certain assets at a point in time and do not address liabilities or whether the assets were borrowed.
Does Wealtii publish proof of reserves?
Wealtii publishes the address of the Gnosis Safe 3-of-3 multi-signature vault on BNB Smart Chain that holds user fund assets 1:1, so anyone can check its holdings on BscScan at any time. Wealtii does not yet publish a liabilities proof, and its reserves have not been examined by a third-party auditor.
Sources & References
- Vitalik Buterin — Having a safe CEX: proof of solvency and beyond (19 Nov 2022) (accessed 21 Oct 2026)
- PCAOB — Investor Advisory: Exercise Caution With Third-Party Verification/Proof of Reserve Reports (March 2023) (accessed 21 Oct 2026)
- SEC Office of Investor Education — Crypto Asset Custody Basics for Retail Investors (accessed 21 Oct 2026)
- BscScan — Wealtii vault address (accessed 21 Oct 2026)
Disclaimer: This content is for educational purposes only and does not constitute financial, tax, or legal advice. Digital assets are volatile and carry risk of loss. Wealtii is early-stage and not regulated.
