Proof of Reserves is a mechanism designed to strengthen user trust in cryptocurrency exchanges. For most of the crypto industry’s history, users who deposited assets with an exchange simply trusted that the funds were safe. The collapse of FTX in 2022 shattered this complacency. Investigators found that billions of dollars in customer deposits had been quietly diverted to FTX’s affiliated trading firm, leaving a significant shortfall. This episode highlighted the urgent need for more transparent verification mechanisms to protect user funds.
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