• OKX, the 2nd largest crypto exchange by volume has published the 2nd Proof of Reserves.
• The report offers great insight into the exchange and fulfills its promise of transparency.

OKX, the second-largest cryptocurrency exchange platform by trading volume, recently published its second Proof of Reserves (POR) report. To boost customer confidence by allowing checking the validity of its 23,000 addresses, OKX will publish proof of funds reports on the 22nd of every month. To evaluate the condition of the exchange and the security of their assets, users can now check current and previous reserve ratios.

OKX’s Chief Marketing Officer Haider Rafique stated in a press release that “publishing PoR results monthly strengthens our commitment to leading the industry in transparency and trust. At OKX, we believe that PoR should be verifiable via open source tools so that users can self-verify the balances and ownership of our reserve addresses.”

What is Proof of Reserves?

Proof of reserves is an audit method many cryptocurrency exchanges, including OKX, adopted in the aftermath of FTX’s collapse to prove funds weren’t loaned out and that the exchange had the assets it claimed to hold on behalf of its customers. Despite this, the reports have been criticized for lack of transparency on liabilities and internal quality controls, a significant point of discussion in the crypto community.

For example, recently, Binance’s proof of reserves report from French audit firm Mazars was criticized for requiring more information on how the exchange liquidates assets to cover margin loans.

How does the audit work?

1) To verify all user assets maintained on the exchange, OKX uses a “Merkle tree” verification technique, a data structure to encrypt data securely.

2) The exchange confirms that they own all OKX wallet holdings and on-chain wallet addresses.

3) OKX compares the total user asset holdings with the total exchange assets from its on-chain wallet addresses to confirm their reserve ratio.

How can users determine whether their assets are included in the Merkle tree?

Each qualified user is assigned a distinct anonymous user hash ID once their trading and funding account snapshot is obtained. The “Merkle leaf” on the tree represents the overall asset balance for each user. In contrast, the “Merkle root,” a cryptographic signature that represents all user holdings, is created by adding all users’ assets. The Merkle tree is a binary hash tree created to find any manipulation or data tampering. Any alterations to user assets will be reflected in the Merkle root. This approach guarantees the total legitimacy of data.

How to verify the ownership of your OKX wallet address and assets?

OKX provides a list of wallet addresses where you can check the on-chain assets. These addresses have a signed message that reads, “I am an OKX address,” proving the ownership. To confirm the ownership, use the open-source or third-party “VerifyAddress” tools supplied by OKX.

How to verify if the OKX reserve is solvent?

It is done by comparing the total user assets from the Merkle root with the total assets stored in OKX’s on-chain wallets. The reserve ratio will demonstrate that OKX has Proof of Reserves if their total on-chain asset balance exceeds or is equal to the entire asset balance of OKX users.

Conclusion

In light of a bearish cryptocurrency market, OKX is taking a huge step to establish trust and transparency that is currently overlooked in the crypto finance ecosystem. Proof of Reserves could potentially become an industry-standard solution for crypto exchanges to attract new users.