First, let me clarify the background and context of the Proof of Reserves (PoR) mechanism.
It refers to a PoR algorithm logic previously adopted by a leading exchange—dividing on-chain wallet balances by total user net assets. Why does the resulting ratio often exceed 100%? The reason is straightforward: wallet addresses don't just contain user funds; they also include the platform's own assets, risk reserves, and similar holdings. The original intention behind this disclosure was sound—to give users peace of mind by showing that the platform's asset coverage exceeds user demands.
It sounds good in theory, but problems have become quite apparent in execution. Many people don't actually understand how PoR works. When they see that number exceeding 100%, it's easy for understanding to go off track. Some assume the platform has double the funds sitting there, which isn't the case. While the algorithm was designed with the intention of demonstrating solvency, in practice it has created considerable information gaps and understanding costs.
This situation also reflects a broader phenomenon: exchanges still have substantial room for improvement in transparency.
First, let me clarify the background and context of the Proof of Reserves (PoR) mechanism.
It refers to a PoR algorithm logic previously adopted by a leading exchange—dividing on-chain wallet balances by total user net assets. Why does the resulting ratio often exceed 100%? The reason is straightforward: wallet addresses don't just contain user funds; they also include the platform's own assets, risk reserves, and similar holdings. The original intention behind this disclosure was sound—to give users peace of mind by showing that the platform's asset coverage exceeds user demands.
It sounds good in theory, but problems have become quite apparent in execution. Many people don't actually understand how PoR works. When they see that number exceeding 100%, it's easy for understanding to go off track. Some assume the platform has double the funds sitting there, which isn't the case. While the algorithm was designed with the intention of demonstrating solvency, in practice it has created considerable information gaps and understanding costs.
This situation also reflects a broader phenomenon: exchanges still have substantial room for improvement in transparency.