Proof of Reserves
A cryptographic or audit-based demonstration that an exchange actually holds the customer funds it claims to, published to build trust after high-profile collapses.
Proof of Reserves is a practice — not a universal legal requirement — where an exchange publishes evidence that it holds enough assets to cover all customer balances, typically using a cryptographic method (a Merkle tree letting individual users verify their own balance was included) combined with an on-chain wallet-balance snapshot, sometimes reviewed by an outside auditor.
The practice became far more prominent industry-wide after FTX's 2022 collapse revealed that customer funds had been misused without depositors' knowledge. Proof of Reserves is a genuinely useful transparency signal, but it has real limits — it typically doesn't verify liabilities as rigorously as assets, and a single snapshot in time doesn't prove funds were fully backed every day of the year.