What Is the Concept of “Proof-of-Reserves” and Why Is It Relevant to CEX Custody?

Proof-of-Reserves (PoR) is an audit method where a CEX publicly demonstrates that it holds the full amount of assets it claims to hold for its customers. It typically involves a cryptographic proof of the exchange's on-chain assets and a third-party audit of customer liabilities.

It is relevant because it attempts to build trust by addressing the risk of fractional reserve practices.