Can proof-of-reserves prevent future crypto exchange collapses?

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A number of exchanges rushed to publish proof-of-reserves in order to assure investors that their funds are safe.

Proof-of-reserves are independent audits that aim to provide transparency and evidence that a custodian holds the assets it claims to own on behalf of its clients The balances are aggregated into a tree called a Merkle tree.

FTX skyrocketed this week after it was revealed that the balance sheet of its affiliate trading firm, Alameda Research, was mostly made up of FTX's native token, FTT. According to Sergey Nazarov, co- founder of Chainlink, this could have been avoided.

The balance sheet issue became known to many people at once. There was a bank run that resulted in insolvency.

Depositors would know what FTX and Alameda Research's balance sheets were like.