“Voluntary Proof of Reserves Disclosure: Regulatory Gaps in Virtual Assets”

The requirement for virtual asset exchanges to disclose their Proof of Reserves (PoR) is voluntary, rather than mandatory by law, leaving gaps in investor protection. For example, GOPAX did not release its PoR report for Q4 2024, citing a lack of legal obligation. However, this has raised concerns in the industry, with critics arguing that the failure to disclose such reports could increase liquidity risks, as investors are unable to verify the exchange’s actual asset holdings.

While many exchanges voluntarily publish these reports every quarter, they highlight key metrics such as the “excess reserve ratio,” which helps determine an exchange’s ability to meet customer obligations. However, under current law, the Virtual Asset User Protection Act does not require exchanges to disclose the excess reserve ratio, and the timing and methods of the audits are left to the discretion of the exchanges.

Experts, including Attorney Ohoon Kwon, suggest that relying solely on cold wallet storage is insufficient and that exchanges should be required to disclose the excess reserve ratio officially. There is growing support for institutional reforms that would mandate this disclosure annually in audit reports, similar to how traditional financial institutions disclose capital adequacy ratios and liquidity coverage ratios.

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