Our Merkle Tree Proof of Reserves service pairs cryptography with traditional CPA attestations, fulfilling the needs of crypto-savvy platform clients, conservative regulators, and management.
What is TNF's Merkle Tree Proof of Reserves service?
Customers and regulators are demanding more transparency from their exchange and custody partners. Exchanges and crypto platforms are trying to do more to increase transparency, but the market lacks a uniform, third-party-attested approach including a Merkle Tree method for customer verification.
The Network Firm’s Proof of Reserves system is an institutional attest reporting and user verification application enabling trading platforms and custodians to prove to their customers that the liabilities held on platform are reserved by like-kind digital assets. The Merkle Tree Module empowers customers to cryptographically verify that their account balances (liabilities) have been included in the periodic assessment and also review the CPA attestation report to better understand the procedures performed and results of those procedures.
As the first CPAs to perform a proof of reserves engagement under the Merkle-assisted model, we are forging the standard. The Network Firm’s Proof of Reserves system delivers you a robust, repeatable, and reliable solution for even the largest and most complex operations. Our expert team will work with you to define the scope of your attest report coverage, produce the customer liability set, test asset ownership and also produce the Merkle Tree and database for the customer verifier. Our high-availability API will serve your report and the customer verification, allowing you to show a proof of reserves on your public website and/or your permissioned customer portal.
The Network Firm created LedgerLens, a suite of Proof of Reserve software that is used to execute TNF's different types of Proof of Reserve engagements. You can learn more about the LedgerLens software here.
What does the output look like?
The Network Firm delivers the following outputs to our clients for our Merkle Tree Proof of Reserve Service.
1. Embeddable Merkle Module
TNF delivers a widget that is embeddable onto your public website, highlighting the details related to all of your Proof of Reserve attestations. Importantly, the widget hosts a Merkle Tree Verifier, enabling users to confirm their User Account was included within the scope of the Proof of Reserves. The Merkle Root Hash presented on the Summary and Merkle Tree tabs matches the Merkle Root published by TNF within the attestation report, effectively "linking" the Merkle Tree and Attestation Report.
An API service is available if you would like to fully customize the design of the widget.
2. Attestation Report under AICPA Standards
On the Embeddable Merkle Tree Module, the attestation report completed by TNF is available for download by your users. The attestation report is issued under standards promulgated by the American Institute of Certified Public Accountants (AICPA) (AT-C 215 Agreed Upon Procedures).
Example of Live Merkle Tree Proof of Reserve Clients
FAQ
What types of digital asset companies can use Merkle Tree Proof of Reserves?
Essentially, any type of Company that holds digital assets, as tracked on it's own internal database, on behalf of external customers, can execute a Merkle Tree Proof of Reserves. Usually, that means it is the following types of companies:
Exchanges: whereby a platform custodies digital assets on behalf of customers to facilitate trading, staking, and more activities.
Custodians: whereby a platform custodies digital assets on behalf of customers for the primary purpose of securing digital asset
How long does an Proof of Reserve Engagement take to complete?
The standard timeline to complete the first report is 3 to 4 weeksonce engagement starts. Subsequent reports are typically completed within 2 to 3 weeks.
How do I embed the widget on my website?
Embedding the widget onto your website is as simple as inserting a simple line of code within your website. Here is the step-by-step:
Insert the following HTML code snippet in the section of your website where you would like to display the attestation reporting widget.
src: property should follow the URL pattern noted above
version: relates to the widget version # (i.e. v1, v2, etc)
client: your client or product name being supported by LedgerLens
width/height: specify the widget size on your page
Test the widget on your site
What is the cost of the service?
Subject to scoping, typicaly costs are around:
Price per Report: $2,000 to $50,000
To deliver the AT-C 215 Auditor’s report on the in-scope assets and liabilities.
Monthly License Fee: $1,000 to $1,500
Costs to build, host, and maintain the Embeddable Merkle Module and associated information.
What drives the range on costs?
Every Proof of Reserve engagement is unique. These unique characteristics that drive the range on costs are:
Number/Complexity of Assets: refers to how many of the Customer Liability types (and associated collateral assets) are desired to be included within the scope of the PoR. If you have assets on obscure chains, it drives up costs due to new tooling needing to be built!
Complexityof Asset/Liability Pairs: Many times, an exchange can support many complicated instruments on the platform (i.e. leverage products, derivatives, staking, lending, etc). The nuances of these asset/liability pairs adds time and effort to scope and execute the Proof of Reserve.
Readiness of the Client: Please review the Proof of Reserve Checklist to ensure you are prepared!
Will this fulfill my regulatory requirements for Proof of Reserves (such as HB1666)?
Yes! We built our solution with regulation in mind. In fact, we have helped develop and craft multiple pieces of Proof of Reserves legislation, including Texas HB1666, so we know exactly what to look out for!
Is this a "Real-Time" Proof of Reserves?
No, for this service, the Proof of Reserve report and Merkle Tree are published on a periodic basis. Typically, the reporting frequency is either monthly, quarterly, or semi-annual. To explore our real-time reserve service, please view our Real-Time Reserve services page.
How frequently are attestation reports completed?
Typically, the reporting frequency most clients opt into either monthly, quarterly, or semi-annual. The reporting frequency is driven by regulatory requirement or desire for enhanced transparency by our client.
