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Comment by xlbuttplug | Hacker News Reader

The proof of reserves can be done in such a way that each user can verify that their balance is backed: https://www.kraken.com/proof-of-reserves

> Proof of reserves today != proof of reserves tomorrow.

You should be able to detect large outflows/inflows from/to their wallets and demand an explanation.

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How does Kraken/proof of reserves ensure that in case of bankruptcy there are no creditors with higher privileges?

That's a good point. The exchange's remaining liabilities outside user deposits are still an unknown. (Or at least can't be verified in a trustless manner.)

Doesn’t that make it borderline worthless?

Correct. There is no on-chain way to prove that my exchange doesn't actually owe some third party a trillion dollars.

It does prove that the exchange is in possession of "liquid" assets matching user deposits, which I don't think is worthless, especially if the userbase is large.

I agree that it's far from a comprehensive proof though. Perhaps exchanges need to stick to the bigger auditors for now.

Yes, but it's probably good enough to fool the average crypto investor.

Coffeezilla demanded explanations from Tether. None were offerred.

https://www.youtube.com/watch?v=-whuXHSL1Pg

Providing a proof of reserves is about putting user/investor minds at ease. If you're not willing to go all the way, why bother doing it at all?

Though I guess post FTX, all exchanges are scrambling to avoid losing a large chunk of their userbase. Claiming to have a proof of reserves, even if it was done in a half-assed and non transparent way, is probably good enough for the non-scrutinous user.

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