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How Kraken is setting the standard for Proof of Reserves

After the enormous damage served to the crypto ecosystem this past week, we feel a responsibility to detail the standards, operating principles, and values surrounding trust and transparency at Kraken.

As a company deeply rooted in crypto values, we have always encouraged our clients to self-custody their crypto and take back their financial freedom. Every decision we make is in pursuit of safeguarding client funds and earning the trust they place in us to keep them safe.

As the first exchange to commit to undergoing regular Proof of Reserve audits, Kraken set an example for the industry. We championed the benefits of this powerful tool for our clients and allowed them to verify many of their holdings on Kraken themselves. 

As the mounting anger erodes trust amongst counterparties, exchanges, custodians and clients alike, we are encouraged to see the calls for others to follow Kraken’s lead and conduct Proof of Reserves. 

Kraken offers a comprehensive approach to Proof of Reserves that verifies not just reserves, but also liabilities. Cryptographically proving that we hold our clients’ covered assets in reserve at the time of an audit is only half the battle. Kraken’s Proof of Reserves also includes covered liabilities (i.e., tokens in client accounts). 

It is important to note that there are no formally accepted rules or procedures that define a “Proof of Reserves” audit at this time. At Kraken, we engage an independent accounting firm to perform an engagement under standards set forth by the American Institute for Certified Public Accountants and who issue an Independent Accountant’s Report on Agreed Upon Procedures. This report includes specific procedures performed by that firm as well as their findings. Kraken’s last report can be found below.

Read the full report

Kraken’s approach to Proof of Reserves delivers a comprehensive approach to transparency — painting a more complete picture of the exchange’s overall health. Other exchanges and custodians across the industry are defining Proof of Reserves differently, sometimes with superficial requirements, such as self-attestation and excluding the more rigorous element of matching proof of assets with proof of liabilities. 

There is minimal benefit to an exchange proving how much it has in reserve without first proving how much is needed according to its client liabilities. We encourage our peers to recognize the importance of proving both their assets and liabilities, while joining us in setting a rigorous industry standard for Proof of Reserves.

Proof of Reserves is not a silver bullet, but it does represent an important and powerful tool clients should use to verify the trust placed in us. While we always encourage clients to take control of their financial freedom by self-custodying their assets, it is our responsibility to hold ourselves to the highest standards when clients place trust in us to safeguard their assets.

That level of trust can’t be built in a day. Kraken has dedicated the past 11 years to steadily earning client trust so they can continue to trade on Kraken with confidence. Through Proof of Reserves, Kraken is providing an outlet for clients to not just take our word for it that their assets are held by Kraken, but to actually verify it for themselves.

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These materials are for general information purposes only and are not investment advice or a recommendation or solicitation to buy, sell, or hold any digital asset or to engage in any specific trading strategy. Some crypto products and markets are unregulated, and you may not be protected by government compensation and/or regulatory protection schemes. The unpredictable nature of the cryptoasset markets can lead to loss of fundsTax may be payable on any return and/or on any increase in the value of your crypto assets and you should seek independent advice on your taxation position.