Key takeaways
- Proof of reserves compares two numbers per asset: what an exchange holds (reserves) and what it owes its customers (liabilities).
- A Merkle root is one hash that fingerprints every customer balance in a snapshot. Change one balance and the root changes.
- A reserve ratio of 100% or more means that asset was covered when the snapshot was taken. It says nothing about other debts.
- It is a snapshot, not a continuous check and not an audit. Proof of reserves does not prove solvency.
- Flipster publishes daily reserve reports. On 6 October 2026 its page showed eight asset ratios from 100.39% to 206.16% and named no auditor.
Proof of reserves in one paragraph
Proof of reserves (PoR) is a published check that the crypto an exchange controls is at least equal to the balances it owes its customers, counted asset by asset at a stated time. The usual method has two halves. The exchange hashes every customer balance into a Merkle tree and publishes the root, and it shows the wallets that hold the matching assets. Each customer can then confirm that their own balance was counted.
Three terms carry the idea. Reserves are the assets the exchange holds. Liabilities are the balances it owes to customers. The reserve ratio is the first divided by the second. This page is one of the Flipster Learn guides to exchange safety: it explains the method, what it cannot show and how to check a real report.
Why exchanges publish proof of reserves
Exchanges publish proof of reserves because a balance on a custodial exchange is a claim on the company, not a coin in your own wallet. When you deposit, the exchange takes control of the asset and records what it owes you in its own database. From outside you cannot see whether the assets behind that record are still there.
A balance on your screen is a claim on the exchange, not a coin in your wallet.
The question became urgent in late 2022. On 13 December 2022 the US Commodity Futures Trading Commission (CFTC) announced a complaint charging Samuel Bankman-Fried, FTX Trading Ltd. and Alameda Research LLC with fraud and material misrepresentations, over conduct alleged from at least May 2019 to 11 November 2022 (CFTC press release 8638-22). The complaint alleges that customer assets presented as held in custody and segregated were commingled with Alameda’s funds, and asserts a loss of more than $8 billion in customer deposits. On 19 November 2022, eight days after the end of that period, Vitalik Buterin published the essay on proving what an exchange holds and owes that this guide uses as its technical reference.
How a Merkle tree proves your balance is included
A Merkle tree lets an exchange commit to every customer balance with one short value, and lets each customer check their own entry without seeing anyone else’s. Buterin’s essay of 19 November 2022 describes the version suited to exchanges, the Merkle sum tree, in which every node carries a balance as well as a hash (Having a safe CEX: proof of solvency and beyond).
Leaves, branches and the root
The tree is built from the bottom up, out of hashes. A hash is a fixed-length fingerprint of some data: the same input always gives the same output, and any change to the input gives a different one.
- Leaf. One per account: the balance together with a hash of the account identifier, usually mixed with a random value so that nobody can guess whose leaf it is.
- Branch. The hash of the two nodes below it. In a sum tree its balance is the sum of the two balances below.
- Root. The single node at the top. Its hash depends on every leaf, and its balance is the total owed to all customers in that asset.
The exchange publishes the root. Because every leaf feeds into it, the exchange cannot alter, add or remove a balance afterwards without producing a different root.
What you check as a user
You check a Merkle proof: your own leaf plus the sibling values on the path from your leaf to the root. In Figure 1, account D receives leaf C and branch AB. Hashing D with C gives branch CD, and hashing CD with AB gives the root. If the result equals the published root, your balance was included in the total.
The sums matter as much as the hashes. Buterin’s essay explains that an exchange could otherwise hide a shortfall by inserting a fake account with a negative balance; in a sum tree the negative node turns up in somebody’s proof and fails the check. The method works only if customers do check, because an account that nobody verifies can simply be left out.
Flipster describes its own tree in one line: “Each user’s balance is represented as a hashed value inside a Merkle Tree” (flipster.io/support/proof-of-reserves, read 11 October 2026). The page adds that users can verify that their funds are included without revealing personal details. It does not say whether the tree is a sum tree or how a leaf is built.
Reserves, liabilities and the reserve ratio
The reserve ratio is the amount of an asset the exchange holds divided by the amount of that asset it owes customers, written as a percentage. At 100% the two are equal. Below 100% the exchange holds less of that asset than its customers are owed.
Reserve ratio = reserves in one asset ÷ customer balances in that asset × 100
Worked example with illustrative numbers: one asset, four accounts
- Account A
- 1.20 BTC
- Account B
- 0.50 BTC
- Account C
- 2.30 BTC
- Account D
- 4.00 BTC
- Customer balances in the tree (liabilities)
- 8.00 BTC
- BTC in the exchange’s wallets (reserves)
- 8.20 BTC
- Reserve ratio: 8.20 ÷ 8.00
- 102.5%
Illustrative numbers, not Flipster data. The same four accounts appear in Figure 1.
The ratio is always per asset. A surplus in one asset does not cover a shortfall in another unless the exchange converts it, so read the line for each asset you actually hold.
Reading a ratio table
A ratio table lists, for each asset, what customers are owed, what the exchange holds and the ratio between the two. Flipster’s page shows two figures per asset, labelled customer net balances and Flipster net balances, and the ratio. The ratios below were read on 6 October 2026.
| Asset | Reserve ratio | Surplus |
|---|---|---|
| USDT | 106.11% | 6.11% |
| BTC | 101.00% | 1.00% |
| ETH | 103.77% | 3.77% |
| USDC | 206.16% | 106.16% |
| USDE | 173.95% | 73.95% |
| TRX | 148.90% | 48.90% |
| XRP | 101.99% | 1.99% |
| NRSUSDTP | 100.39% | 0.39% |
Read three things: the date, the lowest ratio and which assets are on the list. The lowest figure that day was NRSUSDTP at 100.39%, a ticker the page does not explain. The figures are the company’s own, since the page names no auditor. They also move. The page says reserve reports are published daily, and its audit time control listed one snapshot per day for about the previous twelve months when this guide was written, so the numbers you see will differ from this table.
Why some ratios are far above 100%
A ratio far above 100% means the exchange holds more of that asset than its customers do, usually because some of its own funds sit in the same asset. On 6 October 2026 Flipster’s USDC line showed 206.16%, about twice the customer balance, and USDE showed 173.95%. Possible reasons include the company’s own treasury, fees collected in that asset and working balances kept for withdrawals. The page does not break the surplus down.
A higher number is not a quality score. A ratio of 206% in one stablecoin does not make BTC at 101.00% any better covered, and a large surplus can shrink when the company moves its own funds. What counts is that every asset stays at or above 100% on every date.
What proof of reserves does not prove
Proof of reserves does not prove solvency: it shows that listed customer balances were matched by listed assets at one moment, and nothing more. Kraken, whose reserves are reviewed by an outside accountant, lists the gaps on its own page: the procedure cannot show exclusive control of keys, cannot detect hidden encumbrances or borrowed funds, and depends on the accountant being competent and independent (Kraken Proof of Reserves page, read 11 October 2026).
Liabilities outside the tree
The tree contains customer balances and only those. Loans from lenders, unpaid taxes, legal claims and debts to affiliated companies are liabilities too, and none of them appear in it. Buterin’s essay names the two halves, a proof of liabilities (what customers are owed) and a proof of assets (the keys the exchange controls), and calls the pair a proof of solvency. In accounting, solvency is wider: it counts every debt, not only customer balances.
The same illustrative exchange with a debt outside the tree
- Customer balances in the tree
- 8.00 BTC
- BTC owed to a lender, not in the tree
- 1.00 BTC
- BTC in the exchange’s wallets
- 8.20 BTC
- Published reserve ratio: 8.20 ÷ 8.00
- 102.5%
- Cover for everything owed: 8.20 ÷ 9.00
- 91.1%
Illustrative numbers. The published figure is correct and the exchange is still short.
A snapshot in time
A snapshot shows one moment. Assets can be borrowed for the snapshot and handed back afterwards, a risk Buterin’s essay describes as exchanges passing collateral back and forth, and keys can be lost or funds stolen after the date. Frequent snapshots narrow the window. Daily reports, which Flipster says it publishes, leave less room than quarterly ones, and no schedule removes it.
No opinion on the company
A Merkle proof is arithmetic, not an opinion. It says nothing about who else can use the keys, whether client assets are legally separate from company assets, how good the internal controls are, or whether money in bank accounts exists, since a bank balance cannot be checked on a blockchain. Those questions belong to auditors, regulators and the legal terms.
What we could not verify
The US Public Company Accounting Oversight Board (PCAOB) published an investor advisory on proof of reserve reports in 2023. Its page refused automated requests on 11 October 2026, so this guide neither quotes nor summarises it. Read it on pcaobus.org, under investor advisories, before relying on any summary.
Proof of reserves, attestation and audit compared
The three differ in who does the work and how much of the company they cover. A self-published Merkle proof is the exchange’s own calculation. An attestation is an accountant’s report on specific figures at a specific time. A financial statement audit covers the company’s accounts as a whole and ends in an auditor’s opinion.
| Question | Self-published proof | Accountant review | Financial audit |
|---|---|---|---|
| Who does the work | The exchange | An independent accounting firm engaged by the exchange | An audit firm, under auditing standards |
| What is checked | Customer balances in the tree against wallet balances, per asset | The same snapshot, plus the accountant’s checks that the exchange controls the addresses | All assets and all liabilities in the accounts |
| How often | Can be daily | Periodic, by review date | Usually once a year |
| Can you check your own balance | Yes, with a Merkle proof | Yes, where a Merkle tool is offered | No |
| Main drawback | No outside party stands behind the inputs | Limited to in-scope assets at one date; not an audit opinion | Slow, backward-looking, often not published by private companies |
| Example | Flipster’s page: daily reports, user verification, no third party named | Kraken, whose page showed a report dated 2026-06-30 | Annual accounts of a company that publishes them |
Read them as layers, not as substitutes. The first gives frequency, the second an outside name, the third the whole balance sheet.
How to verify Flipster’s proof of reserves, step by step
You verify Flipster’s proof of reserves in two parts: the public figures, which anyone can read, and your own Merkle proof, which needs an account. The account steps follow Flipster’s own guide to verifying an account balance (flipster.io/blog/how-to-verify-your-flipster-account-balance, published 17 April 2025). We read the public page for this guide. We did not run the account steps, and they are marked.
Open the Proof of Reserves page at flipster.io/support/proof-of-reserves in a web browser. Flipster’s guide says verification is available on the web only. Check the address bar before you log in.
Note the audit time and the Merkle root hash. The root is a string of 64 hexadecimal characters. Copy it, because you compare against it later.
Read each asset line. Divide Flipster net balances by customer net balances and confirm that you get the ratio shown.
Look at the wallet address section. It lists addresses by asset and network. A block explorer for that network shows what each address holds.
Log in and choose View my audit data. Select the date you want and open Details. Not reproduced here: it needs an account.
Download your proof and the tool. Download data gives a file named merkle_proof.json. Open source link gives the verification tool for Windows, macOS or Linux. Not reproduced here.
Run the tool. Put the JSON file in a folder named data beside the tool and run the tool from a terminal. The guide gives the success message as “Merkle proof is valid!”. Not reproduced here.
The guide stops at the success message. Two more checks close the loop. Confirm that the root in your proof equals the root on the public page for the same date, and that the balance in your file equals what your account showed at that time. A valid proof against a root that nobody published proves nothing.
Before you run a downloaded tool
The verification tool is a program that runs on your computer. Take it only from the link inside your logged-in Flipster account, and check any message that sends you elsewhere with the Official Channel Verification tool at flipster.io/channel-verification. Where the tool’s source code is published was not confirmed for this guide.
See Flipster’s current reserve ratios and custody facts
A checklist for judging any exchange’s proof of reserves
Seven questions separate a useful reserve report from a decorative one. The table applies each to Flipster’s page as read on 6 and 11 October 2026. Where the page is silent, the answer says so.
| Question | Why it matters | Flipster’s page |
|---|---|---|
| 1. How often is it published? | A single date can be prepared for. | Daily, according to the page. |
| 2. Are liabilities included, or only assets? | Assets alone say nothing about cover. | Yes. Customer net balances are shown per asset. What is netted is not explained. |
| 3. Is a third party named? | Someone outside should stand behind the inputs. | No. The page mentions independent audits and names no firm. |
| 4. Which assets are covered? | Your asset may not be on the list. | Eight assets had ratios on 2026-10-06. No fiat balances are shown. |
| 5. Can I verify my own balance? | Otherwise accounts can be left out unnoticed. | Yes, with a personal Merkle proof file and a tool, on the web only. Company guide, not reproduced. |
| 6. Are wallet addresses or signatures published? | Addresses let anyone check holdings. Signatures show control. | Addresses are listed by asset and network. No signed messages were found. |
| 7. How are negative balances and margin loans treated? | On a derivatives venue, losses and borrowed funds change what is owed. | Not explained on the page. |
On this checklist Flipster’s report is strongest on frequency and on showing customer balances beside its own. The open points are the unnamed third party and the unexplained treatment of margin and negative balances, which matter on a venue whose main product is leveraged.
Other signals to read alongside reserves
A reserve report is one of several facts about where your assets sit, and the others answer questions it cannot. Four are worth reading with it. Sources and dates for each are on the Flipster security page with the current reserve ratios.
Custody arrangement. Flipster FZE, the Dubai company, states that it keeps at least 90% of client virtual assets in cold wallets, where keys stay offline, and less than 10% in hot wallets. It pools client assets in omnibus wallets whose keys it alone holds, and says they are held in trust, apart from its own assets (flipster.io/policies/public-disclosure-uae, last updated 18 June 2026). It also says hot-wallet assets are insured, without naming the insurer or the limit, and we found no equivalent published statement for Flipster Corp.
A Flipster blog post adds that the exchange uses MPC cold-wallet custody with Fireblocks; no supporting document is published. Multi-party computation (MPC) splits a private key into shares held by separate parties, so the whole key is never in one place (Fireblocks explainer on MPC). The glossary has definitions of Merkle tree, cold wallet and MPC.
Licence and register entry. Flipster FZE is licensed by the Virtual Assets Regulatory Authority (VARA), Dubai, for Exchange Services under VASP Licence VL/26/07/002, issued on 14 July 2026 and shown as Active on the VARA public register entry for Flipster FZE. A licence is not a reserve check, and this one does not extend to Flipster Corp, which runs the global platform. See how to check the VARA licence of Flipster FZE (VL/26/07/002) and the legal entities behind Flipster.
Bug bounty. Flipster has a public bug bounty programme hosted on HackenProof, where outside researchers can report vulnerabilities. It speaks to software security, not to reserves. The programme link is on the security page.
Complaints route. Flipster FZE’s disclosure sets out a complaints process: acknowledgement within one week, a resolution within four weeks and a final response within eight weeks. A reserve report gives you no such route. Custody and counterparty risks are set out in the custody and counterparty risk disclosure.
Two things are easy to confuse with reserves. An insurance fund absorbs losses from liquidated derivative positions and is not customer money held one for one: see the insurance fund on perpetual futures, which is not a reserve. And a reserve report tells you about the exchange, not about your position. For that, read what a funding rate is and how liquidation prices work.
Proof of reserves FAQ
Is proof of reserves the same as an audit?
No. Proof of reserves compares customer balances with the assets an exchange controls, asset by asset, at one moment. A financial statement audit examines the whole company: all assets, all liabilities and the accounts built on them, under auditing standards and with an auditor’s opinion. A reserve proof can be exact about what it covers and still say nothing about loans, legal claims or internal controls.
What is a good reserve ratio?
A ratio of 100% or more for every asset you hold means that asset was covered when the snapshot was taken. A figure far above 100% is not better in itself: it usually means the exchange keeps some of its own funds in that asset. Look at the lowest ratio, the date and whether the liabilities are complete, not at the highest number.
Can an exchange fake proof of reserves?
It can mislead without breaking the mathematics. A Merkle proof is very hard to forge for a balance that a user actually checks, but an exchange could leave accounts out of the tree, borrow assets for the snapshot, or owe money that is not in the tree at all. Checks by many users, published wallet addresses and a named third party narrow these gaps. They do not close them.
How often should reserves be published?
The more often, the less room there is to borrow assets for a single date. Monthly or quarterly snapshots leave long gaps; daily reports, which Flipster says it publishes, leave short ones. Frequency is not everything: a daily figure with no outside check and a quarterly figure reviewed by an accountant answer different questions, so read both the date and who stands behind it.
Does proof of reserves protect my money?
No. Proof of reserves is information, not protection. It does not insure your balance, gives you no legal claim you did not already have and does not stop an exchange from failing after the snapshot. Crypto held on an exchange does not benefit from any form of financial protection, so a reserve report is one input when you choose a venue and decide how much to hold on it.
Sources
- Flipster, Proof of Reserves page: flipster.io/support/proof-of-reserves, read 2026-10-06 and 2026-10-11.
- Flipster, “How to Verify Flipster Account Balance - Merkle Tree Verification”, published 2025-04-17: flipster.io/blog/how-to-verify-your-flipster-account-balance, accessed 2026-10-11.
- Flipster FZE, Public Disclosure, last updated 2026-06-18: flipster.io/policies/public-disclosure-uae, accessed 2026-10-11.
- VARA public register, Flipster FZE, VASP Licence VL/26/07/002: vara.ae register entry for Flipster FZE, accessed 2026-10-11.
- Vitalik Buterin, “Having a safe CEX: proof of solvency and beyond”, 2022-11-19: vitalik.eth.limo essay on proof of solvency, accessed 2026-10-11.
- Commodity Futures Trading Commission, release 8638-22, 2022-12-13: cftc.gov press release 8638-22, accessed 2026-10-11.
- Kraken, Proof of Reserves, including its list of shortcomings: kraken.com proof of reserves page, accessed 2026-10-11.
- Fireblocks, “What is MPC (Multi-Party Computation)? MPC 101”, dated 2026-04-17: fireblocks.com explainer on multi-party computation, accessed 2026-10-11.
For information only. Not investment advice. Nothing on this page is a recommendation to use any exchange or to keep assets on one.