Guide · Risk Management
Proof of Reserves: What a Crypto Exchange Can Prove
Proof of reserves shows that a crypto exchange holds at least as many coins on chain as its customers' balances add up to, at one moment in time. Here is how the reserve ratio and Merkle tree work, using Binance's October 2026 snapshot, and what the report cannot prove.
On the evening of October 29, 2026, TokenPost reported Binance's latest proof-of-reserves snapshot, dated October 1. It showed 691,003.593 bitcoin in Binance's on-chain wallets against 688,572.68 bitcoin of net customer balances, a reserve ratio of 100.35%. All seven assets listed were at 100% or more: ether and Solana at exactly 100.00%, BNB at 100.47%, XRP at 100.77%, Tether's USDT at 103.88% and USDC at 108.26%. The same evening an attack on Binance's hot-wallet systems, which began around 20:05 UTC, led it to suspend withdrawals, and on October 30 it said a fresh snapshot would be published by Monday, November 2. Both reports answer the same narrow question, and it is worth knowing exactly which one.
A proof of reserves has two halves. The first is the assets: the exchange shows which blockchain addresses it controls, by publishing them or by signing a message with their keys, so anyone can add up the coins in them. The second is the liabilities: the total of what customers are owed, coin by coin. The reserve ratio divides the first by the second. Exchanges began publishing these reports in late 2022, after the collapse of FTX showed that customer deposits could be missing without anyone outside knowing; Binance launched its own in November 2022, starting with bitcoin.
The liability side is the harder one to trust, because only the exchange knows its customers' balances. The usual solution is a Merkle tree: every account balance is hashed into a leaf, the leaves are combined in pairs up to a single root, and the root is published. Each customer receives a record that lets them check their own balance is included without seeing anyone else's. Binance has added zero-knowledge proofs, known as zk-SNARKs, since 2023, to show that the total was computed correctly and that no account was given a negative balance to shrink it.
Read the October 1 numbers with that in mind. A ratio of 100.35% means a surplus of about 2,431 bitcoin, a cushion of a third of one percent. Ether and Solana at 100.00% means one coin held for every coin owed and nothing more. TokenPost noted that the excess is not Binance's total corporate assets: the report covers customer custody only. That is exactly what proof of reserves is designed to show, and it is a meaningful guarantee in normal times, because it means the coins behind customer balances existed on that date.
What it cannot show is just as important. It is a snapshot, so assets could in principle be borrowed for the day and returned. It says nothing about the exchange's other debts, so a company can hold every customer coin and still be insolvent; only a full audit of the balance sheet answers that. It does not prove the coins are unencumbered, for example pledged as collateral. And it is only as good as whoever checks it: in December 2022 the audit firm Mazars paused its proof-of-reserves work for crypto clients, Binance among them, which left many reports self-published.
A hack is where the cushion meets reality. If thieves take coins from the exchange's wallets, the on-chain assets fall while customer balances stay the same, and a thin surplus disappears immediately. The ratio returns to 100% only if the exchange replaces the coins from its own money. Binance said on October 30 that it had set aside more than $6.34 billion from its SAFU fund and corporate treasury to cover the roughly $6.3 billion stolen, that about $5 billion of it was already held in the affected tokens, and that it had secured about 80% of the replacement assets, according to Crypto Briefing. The post-incident snapshot is how customers can see whether that happened.
If you hold coins on an exchange, a short check is enough. Find the snapshot date and how old it is. Look up the ratio for the specific coins you hold, not the average. Use your own Merkle record to confirm your balance was included. See whether an independent firm attested to the report or whether it is self-published. And compare successive snapshots, especially the first one after a hack or a large outflow. A ratio above 100% is a floor under customer deposits on one day, not a promise about the next.