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What is proof of reserves in crypto exchanges?

Proof of reserves (PoR) is a transparency method where exchanges publicly demonstrate they hold enough assets to back customer deposits. It often uses cryptographic proofs, such as Merkle tree audits, to show that user balances are included in verifiable reserves. Some exchanges publish wallet addresses to confirm on-chain holdings. While PoR improves trust, it is not foolproof—liabilities may be hidden or manipulated. Reliable exchanges combine proof of reserves with independent third-party audits. For traders, verifying PoR adds confidence that an exchange is solvent and not misusing customer funds. However, it should be one factor in overall risk assessment.