Share this article
Bank of America Says Crypto Exchanges' Proof of Reserves Have Too Many Shortcomings
The cryptocurrency industry also needs a clear delineation between trading platforms and market makers, the bank said.
By Will Canny
Updated Nov 23, 2022, 10:17 p.m. Published Nov 18, 2022, 10:44 a.m.
Following the collapse of FTX and Alameda Research, crypto trading platforms are rushing to show that clients’ assets are safe and not being used for speculation. However, “proof of reserves, at least in the form they’ve been suggested, have too many shortcomings to inspire confidence,” Bank of America (BAC) said in a research report Thursday.
The bank notes that many exchanges have already reported, or are planning to report, their assets through proof of reserves using Merkle trees. These are efficient data structures called “hash trees” that can be securely verified. They behave as a map of customers' funds and work even when reserves become complicated.
STORY CONTINUES BELOW
Read more: Proof of Reserves: Could it Have Prevented the FTX Meltdown?
Among the shortcomings, assets are shown at a fixed point in time, which gives opportunities for manipulation, such as borrowing assets right before the snapshot is taken, the note said.
In addition, proof of liabilities is required to determine leverage and the safety of assets, and proof-of-reserve procedures often rely on third-party audit firms that can be manipulated or “may even be created by the trading platform itself,” the note added. And, even if users notice asset-liability mismatches, there is no stop button.
Stablecoin reserves also need to be audited and not just displayed. Stablecoins are a type of cryptocurrency whose value is pegged to another asset such as the U.S. dollar, and are the equivalent of cash in the crypto world.
While not a shortcoming of proof of reserves, the crypto industry also needs a clear delineation between trading platforms and market makers, the report said.
Most importantly, it needs regulation, the bank said, adding that FTX’s regulatory status in the Bahamas means it is unclear if founder and former CEO Sam Bankman-Fried violated any laws, given that FTX was not regulated as a broker-dealer.
Decentralized exchange (DEX) trading volumes are expected to continue increasing until confidence is restored, the note added.
Read more: JPMorgan: The Shrinking Stablecoin Market Is Another Sign of Investors’ Exodus From Crypto
Больше для вас
Что нужно знать:
- As of October 2025, GoPlus has generated $4.7M in total revenue across its product lines. The GoPlus App is the primary revenue driver, contributing $2.5M (approx. 53%), followed by the SafeToken Protocol at $1.7M.
- GoPlus Intelligence's Token Security API averaged 717 million monthly calls year-to-date in 2025 , with a peak of nearly 1 billion calls in February 2025. Total blockchain-level requests, including transaction simulations, averaged an additional 350 million per month.
- Since its January 2025 launch , the $GPS token has registered over $5B in total spot volume and $10B in derivatives volume in 2025. Monthly spot volume peaked in March 2025 at over $1.1B , while derivatives volume peaked the same month at over $4B.
Больше для вас
Stripe-Backed Blockchain Tempo Starts Testnet; Kalshi, Mastercard, UBS Added as Partners
Tempo, built by Stripe and Paradigm, has started testing payment-focused blockchain and has onboard a slew of institutional partners.
Что нужно знать:
- Stripe and Paradigm’s Tempo blockchain has launched its public testnet for real-world payment testing.
- Kalshi, Klarna, Mastercard and UBS are among a wave of new institutional partners now involved in the project.
- Tempo aims to offer low-cost, fast-settlement infrastructure for global payments as stablecoin adoption is accelerating globally.
Top Stories
