What is a Proof of Reserves?
Quick Definition
Proof of reserves is a verification mechanism that demonstrates a protocol or issuer holds the assets it claims to hold, typically combining on-chain data with off-chain attestations.
Full Definition
Proof of reserves became a critical concept in crypto after several high-profile failures revealed that some issuers and exchanges weren't holding the assets they claimed. The goal is simple: provide a way for holders to verify that backing assets exist and match the claimed amounts, instead of relying only on blind trust.
There are different approaches to proving reserves. On-chain proof uses cryptographic techniques to show that an issuer controls specific blockchain addresses holding specific amounts of assets. Off-chain attestations rely on independent third parties, typically auditors or banks, to confirm that specific assets are held in specific accounts. The strongest proof of reserves combines both: on-chain verification for digital assets and independent attestations for off-chain holdings.
What makes proof of reserves credible
Credible proof of reserves has several elements: detailed data that allows backing to be verified, frequent publication, verification by reputable independent parties, and coverage of all relevant assets rather than only a subset.
Holders should also consider what proof of reserves does not cover. It typically confirms whether assets exist, but it does not necessarily prove that those assets are unencumbered, free from liabilities, or available for redemption. The strongest models address these gaps explicitly.
Steady's approach to proof of reserves
Steady's reserve backing is supported by bank statements and attestations that allow holders to verify what Steady holds. The on-chain side is permanently visible, allowing anyone to check the total STDY supply on Ethereum and Arbitrum. The off-chain side is supported through bank attestations covering the reserve holdings. Together, these provide a verifiable view of what backs STDY at any point in time. Current data is published through the Transparency Portal.
Related Terms
Asset Backing
ReadAsset backing refers to the real-world or on-chain assets held by the issuer to support the value of every token in circulation.
Audit
ReadAn audit is an independent examination of a protocol's code, reserves, or operations by qualified third parties to verify accuracy and compliance with stated claims.
Reserve Verification
ReadReserve verification is the process by which holders, auditors, or other third parties confirm that a stablecoin issuer's claimed reserves actually exist and match the circulating supply.
Transparency Portal
ReadA transparency portal is a publicly accessible dashboard where a protocol publishes detailed information about its operations, reserves, and performance.
Other Glossary Items
Learn about common and essential terms related to Steady and other stablecoin protocols.
Algorithmic Stablecoin
ReadAn algorithmic stablecoin attempts to maintain its value through automated rules that adjust token supply based on market demand, rather than holding equivalent reserve assets.
AML
ReadAML (Anti-Money Laundering) refers to the laws, regulations, and procedures designed to prevent the use of financial systems for laundering the proceeds of crime.
APY
ReadAPY, or Annual Percentage Yield, is the standardized rate of return an asset generates over a year, including the effect of compounding.
Arbitrum
ReadArbitrum is a Layer 2 blockchain network built on top of Ethereum, designed to offer faster and cheaper transactions while inheriting Ethereum's security and infrastructure.
Asset Locking
ReadAsset locking refers to restricting access to funds for a defined period or condition, during which they cannot be transferred or used.
Asset Segregation
ReadAsset segregation is the practice of keeping client or backing assets separate from the issuer's operational funds, protecting them from the issuer's other obligations.
Backing
ReadBacking refers to the assets or mechanisms that support a stablecoin's value and help it maintain its intended reference value.
Blockchain Network
ReadA blockchain network is the system of connected participants and infrastructure that validates, records, and maintains data on a specific blockchain.
Blockchain
ReadA blockchain is a distributed digital ledger that records transactions across a network of computers in a secure, transparent, and tamper-resistant way.
Bridge
ReadA bridge is a mechanism that enables the transfer of assets or data between different blockchain networks.
Clarity Act
ReadThe Clarity Act is a proposed US legislative framework intended to clarify the regulatory treatment of digital assets, defining when they should be treated as securities versus commodities.
Collateralization / Over-collateralization
ReadCollateralization refers to the ratio between the value of assets held in reserve and the value of tokens issued. Over-collateralization means holding more in reserves than the value of tokens issued.
Composability
ReadComposability refers to the ability of different protocols, contracts, and tokens on a blockchain to interact and combine with each other seamlessly.
Counterparty Exposure
ReadCounterparty exposure refers to the risk that another party, such as a bank, custodian, broker, or service provider fails to fulfill its obligations, potentially affecting the assets or funds it holds.
Custodial vs. Non-Custodial
ReadCustodial means a third party holds the private keys to your assets on your behalf. Non-custodial means you hold your own keys and control your own assets directly.
LearnMoreAboutSteady
Transparency Portal
reserves, statements, audits, smart contract, and more.
FAQs
Discover the basics about Steady in our frequently asked questions.
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