Proof-of-reserves (PoR) is being promoted as a method for crypto exchanges to demonstrate their financial health by showing they hold sufficient assets to cover customer deposits. While PoR can offer some insight into an exchange’s liquidity, it does not provide a complete picture of the platform’s overall financial stability or risk exposure.
The approach typically involves cryptographic proofs that verify asset holdings without revealing sensitive information. However, PoR does not address other critical factors such as liabilities, off-chain risks, or the quality of assets, meaning it cannot fully guarantee trustworthiness.
**Why this matters**
As the crypto industry seeks greater transparency, PoR is often viewed as a step toward rebuilding user confidence after several high-profile exchange failures. Understanding its limitations is important for investors and regulators to avoid overreliance on this tool and to encourage more comprehensive oversight measures.
Source: News Source