Explanation
Without an equally thorough check of liabilities it says little: a platform can show assets while hiding debts. An external audit carries more weight.
01
What it does show
An exchange publishes addresses and a cryptographic tree (merkle tree) with which every client can verify their balance is included in the total. That proves the assets existed at that moment and that your balance was counted — a genuine improvement after FTX.
02
What it does not show
Liabilities. A platform can borrow coins just before the snapshot and return them afterwards. Without an independent auditor verifying obligations, a proof of reserves says little about solvency. So look at the frequency, the auditor and whether the liability side is included.
Key takeaways
- Assets at one moment, no liabilities.
- Look for audits covering liabilities.
- Frequent publication beats a one-off.