Proof of Reserves
Evidence that an asset is fully backed by the reserves it claims, ranging from auditor snapshots to continuously verifiable onchain holdings.
Proof of reserves is any method of demonstrating that a custodian, exchange, or token issuer actually holds the assets backing its liabilities. The term spans a wide trust spectrum: at one end, third-party attestations that check balances at a single point in time; at the other, fully onchain designs where anyone can verify backing continuously, block by block.
The attestation model became popular after major exchange collapses. A custodian publishes wallet addresses or hires an accounting firm to confirm holdings on a given date, sometimes paired with a Merkle-tree proof that lets users check their balance was included in the liability count. These snapshots are better than nothing, but they have known weaknesses: assets can be borrowed just for the audit date, liabilities are often self-reported or partially excluded, and you must trust the attester's scope and independence.
Onchain backing removes most of that trust. When a token's reserves sit in a public smart contract, anyone can read the balances in real time and verify the redemption logic in code rather than in a report. In-kind backed index tokens illustrate this: Tessera's indexes, for example, hold their underlying assets in an immutable vault contract, so backing is checkable at any moment rather than at audit time.
Continuous verification still is not a guarantee of safety. Onchain visibility proves the assets exist, not that the contract is bug-free, that the reserve assets are high quality, or that their prices will hold. Read what a proof of reserves actually covers before relying on it, and treat point-in-time attestations as a floor, not a ceiling, of assurance.