Reserve ratio = HTX's on-chain assets snapshotted / Total users' assets on HTX. A reserve ratio of 100% or higher indicates that the platform has sufficient assets to cover all users'.
Proof of Reserves (PoR) refers to independent audits verifying that a custodian (like centralized exchanges) possesses sufficient reserves to support all of its users’ balances for full withdrawal.
This cryptographic attestation demonstrates that a crypto exchange holds a specific amount of assets on the certain blockchain at a particular time, providing transparency of aggregate user assets or the total sum of deposits on the exchange. This is achieved while ensuring that sensitive information about individual account balance remains confidential. As such, PoR plays a vital role in the cryptocurrency ecosystem.
Example: When a user deposits one Bitcoin, HTX's reserves increase by at least one Bitcoin to ensure user assets are fully backed. It is important to note that this does not include HTX's corporate holdings, which are stored in a completely separate ledger.
To show that HTX has all user assets backed 1:1, we have implemented a Merkle tree (shown below) that enables users to verify their assets on the platform. Our goal is to facilitate every user to verify their assets using their unique Merkle hash or record ID. This ensures that individuals can confirm their assets are securely held 1:1, with the added assurance of verification by a third-party audit agency.
Merkle tree is a data encryption structure that enables the consolidation of large amounts of data into a single hash. This single hash, called a Merkle root, acts as a cryptographic seal that totals all the inputted data. Additionally, Merkle trees give users the ability to verify specific contents that were included within a particular set of sealed data. We use these properties of Merkle trees during our Proof of Reserves assessments to verify individual user accounts are included within the liabilities report inspected by the auditor.
