In the wake of the FTX liquidity crisis, two major crypto exchanges have announced that they will provide Proof of Reserves, also known as Proof of Funds (PoF) within the next month.
OKX had stated that their PoF would be done “in the coming weeks (within 30 days).” This timeline has now been updated to “asap.”
CEO of KuCoin Johnny Lyu also announced that KuCoin will be providing Proof of Reserves “in about one month.” He said KuCoin will be working with “authoritative auditing institutions” to make sure that the Proof of Funds accurately represents the assets on hand.
Proof of Reserves is a technique used by some crypto exchanges to provide proof that they have enough assets to handle all withdrawals. A reputable third-party auditor records all customer balances and converts them into a cryptographic Merkle Tree. This anonymizes the data to protect privacy, but it also allows users to compare the total balances held by customers with the total assets the exchange has on hand.
Similar protocols are used by Kraken, Bitmex, Gate.io and many other exchanges, but were not used by FTX. CZ of Binance recently argued that all exchanges should provide PoFs to make sure that an exchange is not using “fractional reserves.”