Proof of Reserves (PoR)
Also known as: Asset Transparency Report, Crypto Custody Proof, Reserve Audit
A cryptographic method for verifying that a centralized entity holds the assets it claims on behalf of users.
Proof of Reserves (PoR) is a transparency mechanism that enables centralized exchanges or custodians to publicly prove they hold sufficient assets to back customer balances. It typically uses Merkle trees and cryptographic proofs to match reported balances with on-chain holdings. When implemented correctly, PoR increases trust and reduces the risk of insolvency or fraud. This method gained prominence following high-profile exchange failures. While powerful, PoR is only as trustworthy as its implementation, audit transparency, and whether it includes liabilities alongside assets.