Who uses exchange proof of reserves with liabilities?

Crypto exchanges, brokers and custodians that hold customer assets in their own wallets; an issuer showing a token is fully backed runs continuous proof of reserves instead.

Goldsky

Exchange proof of reserves with liabilities

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What is exchange proof of reserves with liabilities?

Exchange proof of reserves with liabilities is how a crypto exchange shows that the assets in its wallets cover what it owes customers, asset by asset: wallet balances at one snapshot block on one side, and on the other the total of customer balances, published as a Merkle tree so each customer can check their own balance is counted.

Exchanges and custodians publish it because customers and counterparties can’t otherwise see whether deposits are backed, and an accounting firm’s review covers only the moment of the snapshot.

Goldsky keeps each reserve wallet’s balance at every block it changes and runs a scheduled check against the liability totals from your ledger between reviews, while the customer balances, the Merkle tree and the review stay with you and your accounting firm.

How exchange proof of reserves with liabilities works

The diagram follows one check from the exchange’s reserve wallets to the reserve ratio and the accounting firm’s review, and shows who does each step. Your setup may differ.

List reserve walletsEvery wallet holding customer assets

TurboKeep each wallet’s balanceRead at every block it changes

ComposeCheck on a scheduleBetween the accounting firm’s reviews

ComposeRead customer liabilitiesTotals per asset from your ledger

Accounting firmReview a snapshotMerkle tree, signatures and balances

ComposeCompare reserves with liabilitiesAsset by asset, alert below your floor

Goldsky
Your provider

How to run exchange proof of reserves with liabilities

A pipeline keeps every reserve wallet’s balance after each change, and a scheduled Compose task compares the totals with customer liabilities from your ledger, asset by asset, between the accounting firm’s reviews.

What you’ll need

Goldsky Turbo
Goldsky Compose
The list of wallets that hold customer assets, by asset and chain
An internal API that returns customer liability totals per asset
A Postgres database for the wallet list
An alerting endpoint your treasury team watches
An accounting firm for the periodic review

List the wallets that hold customer assets
Reserves are the assets in wallets the exchange controls, so the check starts from a complete list of them.
Each wallet goes on the list with its asset and chain, and the exchange has to be able to sign with its key, which is how a review confirms control. A wallet left off understates reserves; one the exchange doesn’t control overstates them.
Keep each reserve wallet’s balance
Handled by Goldsky Turbo
Any moment you later pick for a check or a review needs every wallet’s balance at that block.
The balance has to be read at the block where it changed, for tokens and the chain’s own coin alike. Reading on a timer misses movements between reads, such as assets borrowed in just before a snapshot and returned after it.
With Goldsky, the wallet list can be a Turbo Pipelines dynamic table, and a transform reads balanceOf with _gs_eth_call at each transfer’s block, or _gs_evm_get_balances for the chain’s own coin. The pipeline writes each balance to a table in your Compose app’s Postgres database, in a schema of its own.
Read balances with Turbo SQL functions (opens in a new tab)
Check on a schedule between reviews
Handled by Goldsky Compose
An accountant’s review covers one moment and says nothing about the days after it.
The check runs often enough to find a shortfall while it’s still small, and every run is kept, so you can show reserves were held between reviews too.
A Compose task with a cron trigger runs the check at the interval you set, and each run’s calls and results are logged.
Run a task on a schedule (opens in a new tab)
Read customer liabilities from your ledger
Handled by Goldsky Compose
Liabilities are what the exchange owes customers in each asset, and they live in its own books, not on the chain.
Totals are per asset and taken at the moment of the check, with staked balances and open margin positions counted the way your review methodology counts them. Liabilities from a different moment than the balances make the ratio meaningless.
The task calls your ledger’s API with ctx.fetch, which retries a failed request and records the call and its response in the run’s log.
Make auditable HTTP requests (opens in a new tab)
Compare reserves with liabilities
Handled by Goldsky Compose
The reserve ratio, assets held divided by what customers are owed, says whether every customer balance is covered.
Each asset is checked on its own, because a surplus in one asset doesn’t cover a shortfall in another. A ratio below your floor raises an alert with the asset, both totals and the block, and a ratio at or above it is still recorded.
Each run of the Compose task reads the latest balances with ctx.db.query, adds them up for each asset, works out the ratio against your floor and posts an alert to your endpoint when it falls short.
See the reserve-check task (opens in a new tab)
Have an accountant review a snapshot
Customers and counterparties want an outside party to confirm the exchange holds what it owes.
The accountant puts every customer balance at the snapshot into a Merkle tree (a structure that lets each customer check their balance is included), checks the exchange’s signatures for its wallets and compares their balances with the total. The review isn’t an audit: it covers one moment and may not show whether assets were borrowed for it.

What you control

Your team: List the wallets that hold customer assets
Your providers: Accounting firm

Questions and answers

What is proof of liabilities?

Proof of liabilities is the half of an exchange’s proof of reserves that shows the total it owes customers, usually as a Merkle tree of every customer balance at the snapshot, so each customer can check their own balance is counted. Comparing that total with the assets in the exchange’s wallets at the same block shows whether every balance is covered. An accounting firm usually reviews both sides, but the review covers one moment and isn’t an audit.