BLOCKCHAIN LAB BRIEFING · CUSTODY
Proof of Reserves Shows Assets on a List. It Does Not Show What the Firm Owes.
After FTX, exchanges published cryptographic proofs that some wallets held assets. Assets without a complete liability list do not show solvency. They show that those wallets existed.
2 October 2026
01
What happened
In November 2022 FTX collapsed with customer assets that were not where customers had been led to believe. Exchanges responded with proof-of-reserves exercises. The careful versions match a stated set of customer liabilities to wallets the firm controls, and say what is out of scope.
Out of scope often includes other liabilities, encumbrances, borrowing, and assets on chains the proof ignores.
02
Why it matters
A policy that accepts proof of reserves as sufficient diligence has replaced an audit with a wallet list. The missing half is what the firm owes and what it has pledged.
The proof is still a useful control against a crude lie about balances. A control is not a clean bill of health.
03
The operating layer
Ask for the liability scope, the date, the chains, and whether an accountant did anything. Prefer a firm that is regulated to hold client assets, with segregation in the contract. Use the proof as a supplement.
Do not show a customer a banner that says solvency verified because a hash matched.
04
What is verified
Kraken publishes a description of its proof-of-reserves programme. The FTX failure is a matter of public record. This desk has not verified any firm’s reserves.
05
What remains unclear
Whether a given report includes all products or only spot balances. Whether assets are lent or held at another broker.
06
The catch
A Merkle inclusion tells a customer their balance was in a list. It does not say the list was complete, or that the assets were free the next morning.
Not a ranking of exchanges.
WATCH
What builders should watch
- 01The liability population the proof claims to cover.
- 02Encumbrances in the legal agreement.
- 03The regulatory status of the firm that holds the asset.
BOTTOM LINE
Read the liabilities and the pledge. A wallet list is not solvency.
Sources
Blockchain Lab uses public social posts as reporting leads, not as proof. Every published briefing is assessed against primary sources, available documentation and relevant technical context. Social engagement is not used as evidence of the underlying claim.
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