Proof of Reserves for Stablecoins Crypto ETFs Real-World Assets Asset-backed Tokens Crypto Custodians Exchange Platforms
Transparency services for a network-driven world.
What is Proof of Reserves?
The Proof of Reserves Equation: Reserve Assets ≥ Customer Liabilities
Proof of Reserves Services
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Conventional Proof of Reserves
“Traditional” CPA-attestation for your stablecoin, exchange or ETF to fulfill your regulatory, licensing and customer needs.
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Real-Time Proof of Reserves
The world’s first real-time CPA-attestation reporting system, integrating directly into bank accounts, blockchains and more, and shrinking the “gold standard” attestation reporting interval from every 30 days to every 30 seconds.
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Merkle Tree Proof of Reserves
A cutting-edge fusion using crypto-native Merkle Tree and Zero-Knowledge Proofs and “traditional” CPA attestations covering both customer assets and liabilities, delivering unparalleled transparency for both “TradFi” and “DeFi” users alike.
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On-Chain Proof of Reserves
Thir consulting service brings your reserve data on-chain via Oracle Networks like Chainlink for use in smart contracts, DeFi protocols, and enhanced security.
Selected Proof of Reserves Clients
Comparison of Proof of Reserves Solutions
Stablecoin Issuers
Available Services:
- Real-Time Reserves
- On-Chain Proof of Reserves
- Conventional Proof of Reserves
Reporting Frequency:
- Real-Time
- Real-Time
- Monthly or Quarterly
Results for Clients and Users:
- CPA Attestations every 30 seconds
- Off-Chain Data Published on Chain
- CPA Attestations
RWAs & Asset-Backed Token Issuers
Available Services:
- Real-Time Reserves
- On-Chain Proof of Reserves
- Conventional Proof of Reserves
Reporting Frequency:
- Real-Time
- Real-Time
- Monthly or Quarterly
Results for Clients and Users:
- CPA Attestations every 30 seconds
- Off-Chain Data Published on Chain
- CPA Attestations
Exchange Platforms & Digital Asset Service Providers
Available Services:
- Merkle Tree Proof of Reserves
- Conventional Proof of Reserves
Reporting Frequency:
- Quarterly or Semi-Annual
- Monthly or Quarterly
Results for Clients and Users:
- CPA Attestation + Customer Verifier (Merkle)
- CPA Attestations
Crypto Custodians
Available Services:
- Merkle Tree Proof of Reserves
- Conventional Proof of Reserves
Reporting Frequency:
- Quarterly or Semi-Annual
- Monthly or Quarterly
Results for Clients and Users:
- CPA Attestation + Customer Verifier (Merkle)
- CPA Attestations
Crypto-backed Exchange Traded Fund Issuers
Available Services:
- Real-Time Reserves
- Conventional Proof of Reserves
Reporting Frequency:
- Real-Time
- Monthly or Quarterly
Results for Clients and Users:
- CPA Attestations every 30 seconds
- CPA Attestations
The Missing Piece to your
Transparency Program
Proof of Reserves is a new and important addition to every digital asset company’s
transparency reporting stack.
Proof of Reserves
CPAs provide a third-party attestation report, relevant to the company's presentation of customer assets being sufficient to meet customer liabilities at a point in time
SOC 1 / ISAE 3402
CPAs provide third-party assurance opinion relevant to the design and operating effectiveness of the company's internal controls relevant to financial reporting.
SOC 2 / ISO 27001
CPAs provide third-party assurance opinion relevant to the design and operating effectiveness of the company's controls to achieve criteria for security, availability, etc.
Financial Statement Audit
CPA's third-party assurance opinion, under private or public co. auditing standards, relevant to the company's presentation of financial statements being free from material misstatements.
CCSS, PCI-DSS, etc.
Allow management to demonstrate application of security best practices and controls relevant to private key management and other security domains.
The Results
Businesses create TRUST with customers, demonstrate COMPLIANCE to regulators, or show business MATURITY to investors by producing third-party assurance and/or other third-party reporting under recognized standards.
Why Include a CPA in your Proof of Reserves Process?
Significant transparency gaps around reserve assets haven’t been solved with cryptography, blockchains, or decentralization alone.
CPA attestation services allow you to fill these transparency gaps.
Fulfill Regulatory Cryptocurrency Reporting Requirements:
Management’s disclosure of reserve asset addresses is a great step towards transparency. However, regulators in the U.S. and globally, require CPA attestations because independent third-party reporting performed under standards is a more comparable and reliable source of key information related to Proof of Reserves.
Balances Held Off-Chain:
Publishing on-chain addresses may be easy for some. However, in complex exchange and custody environments, publishing wallet addresses does not provide useable and insightful transparency for customers. Crypto accountants can aggregate balance information from reserve assets and customer liabilities creating insights not possible when publishing wallet addresses only.
Customer Participation in the Proof of Reserves process:
In certain PoR services, the customer is invited to participate by checking their account’s inclusion in the overall “customer liability extract” provided by the exchange or custodian. Merkle Trees enable this customer participation. However, the involvement of a CPA can provide transparency to users regarding specific procedures performed over the customer liability extract. This involvement of an independent CPA provides an important addition to the PoR reporting process.
Maintaining Confidentiality of Custody Addresses:
Publishing addresses is great for transparency, but most exchanges and custody providers have thousands or millions addresses holding customer funds. Additionally, keeping custody addresses confidential while proving reserves can increase confidentiality and security. A crypto accounting firm can help publish reliable reserve balance information in the aggregate. Digital Assets Service Providers can maintain business confidentiality and security while giving customers the transparency they want and need. deserve.
“TNF’s Proof of Reserves attestation process allowed us to give our customers the reporting they demanded, but it also provided significant value to our business by creating better reserve asset hygiene, best practices, and internal collaboration between finance and custody teams.”
Who Benefits from Proof of Reserves?
Your Users & Customers
Enhances trust in the service provider by providing users and customers unparalleled transparency.
Your Partners
Increases trust and confidence in your platform, creating new partner opportunities, yields
and industry growth.
Regulators
Regulators get key information related to customer reserves, increasing their understanding and potentially reducing costly examinations.
Your Management
Enables improved visibility to the balance of reserve assets and customer liabilities, including historical
positions.
The Industry as a Whole
Enhances the reputation of the industry as a whole by mitigating the risk of customer losses and systemic failures which threaten industry progress.
Don’t Take Our Word for It
Robert Kalkstein, GMO-Z Trust Company, CFO
“TNF has the blockchain expertise paired with assurance prowess. They are a lean and nimble firm. Altogether, TNF is the best choice for assurance services in the blockchain industry.”
Frequently Asked Questions on Proof of Reserves
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Proof of Reserves (PoR) is a transparency method that allows cryptocurrency exchanges, stablecoins, tokenized assets, and crypto-backed ETFs to publicly demonstrate they hold enough assets to cover all customer liabilities. The Proof of Reserves “reconciliation” is different depending on the type of instrument. For example, for stablecoins, a PoR demonstrates the fair value of reserve assets is greater than the total outstanding token supply. For ETFs, a PoR demonstrates the underlying crypto held on behalf of the ETF is greater than the ETF-shares issued and outstanding. PoR uses a combination of cryptographic techniques, like Merkle trees (where applicable), and independent third-party attestations by CPAs to prove that user funds are fully backed 1:1 by real, verifiable assets.
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A Proof of Reserves audit (or attestation) is effectively a reconciliation exercise between assets held on behalf of customers, and the associated liabilities issued by the issuer. A Proof of Reserves “reconcilies” or compares both the assets and liabilities, with the goal of demonstrating that assets are equal to or in excess of liabilities issued.
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Audit evidence in a Proof of Reserves Engagement includes the following, depending on the type of instrument:
Stablecoins:
Smart Contract Token Balances
Bank and Custodial Statements
Bank and Custodial Agreements (to demonstrate control of the accounts)
Insurance, Trust, or Account segregation documentation
Exchanges and Custodians:
On-chain Address holding customer assets
Proofs demonstrating control of the on-chain addresses
A list of customer liabilities, which are extracted from the platform’s database
ETFs:
On-chain addresses or custodial access to on-chain wallets holding reserves
Outstanding share data from registrar and/or Transfer Agent
Specific audit evidence may vary depending on the circumstances,, but the basics remain the same.
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In a Proof of Reserves audit or attestation, “reserves” refer to the assets that are held by the issuer, intended to “back” or collateralize the instrument that is issued to external parties. For example, “reserves” for stablecoins are cash, treasuries, or money-market funds held to “back” the stablecoin. For ETFs, the “reserves” are the actual digital assets held in custody intended to back each ET -share issued and outstanding.
Learn more about Crypto Proof of Reserves Services
The Network Firm is an experienced and trusted crypto accounting firm that provides crypto compliance and consulting services to help you find the right solutions for your digital assets. Simply use the link below to book an introductory meeting with one of our crypto CPAs.