PelatihA proof of reserves is evidence that an exchange controls on-chain assets at least equal to its customers’ balances at a moment: signatures from its addresses, whose balances anyone can read on the chains, compared with a total of customer balances. A proof of liabilities is the evidence that this total is complete and correct: a commitment to every customer balance, usually the root of a Merkle tree (a binary tree in which each node is the hash of its children), against which each customer can check that her own balance was counted.
