Proof-of-Reserves

What is Proof-of-Reserves?

Proof-of-Reserves (PoR) services are delivered with a high degree of specialization to ensure maximum transparency in digital asset custody. This process involves executing an on-chain transaction from a frozen wallet back to itself, verifiably demonstrating that the assets are genuinely under custody control.

Each financial institution is assigned a dedicated subaccount, where all client assets held on its behalf are securely aggregated. The operational approach to Proof-of-Reserves varies based on custody key configuration: when full control of keys is held by the custodian, the proof is conducted independently; if keys are shared between custodian and institution, verification is performed jointly; when exclusive key control rests with the institution, it executes the proof autonomously with full access to the necessary information and tools, enabling even non-expert staff to complete the process effectively.

Unlike traditional audits or internal attestations, the Proof-of-Reserves system relies solely on public blockchain data, ensuring complete transparency and independent verification at any time by any party.

Proof-of-Reserves as a Key Step Toward Proof-of-Solvency

Proof-of-Reserves (PoR) represents a crucial initial verification of the existence and control of assets held by a financial institution. However, PoR alone does not offer a complete picture of financial soundness. To achieve full transparency and confirm solvency, it must be complemented by Proof-of-Liabilities (PoL).

Proof-of-Liabilities entails reconciling the on-chain verified assets with the institution’s internal accounting records, ensuring that client liabilities are accurately matched by corresponding assets. This process verifies that all client obligations are fully reflected and supported by the institution’s on-chain reserves.

The combination of these two elements—Proof-of-Reserves and Proof-of-Liabilities—forms the basis of Proof-of-Solvency. This comprehensive verification confirms that assets not only exist and are under control but are also sufficient to cover all liabilities.

By maintaining a transparent record of these verifications, financial institutions deliver independent, auditable, and verifiable evidence of their solvency. This level of accountability fosters stakeholder confidence in the security of client funds and the institution’s overall financial integrity.