Trust Score 3.0 - Proof of Reserves (Assets & Liabilities)

In our efforts to incrementally improve Trust Score, we’ve introduced Proof of Reserves (Assets & Liabilities) into our Trust Score algorithm.

With the inclusion of Proof of Reserves, we evaluate if an exchange has publicly disclosed reserves stats, or has taken steps related to auditing or reporting to relevant authorities regarding assets & liabilities.

Here’s a rundown:

• Proof of Reserves = Assets + Liabilities
• Assets = Amount owned (i.e. balances in wallets controlled)
• Liabilities = Amount owed (i.e. user deposits in custody)

In short, an exchange that does not have any form of asset disclosure will not have a 10/10 Trust Score on CoinGecko. For exchanges with reserves data available, you will be able to find them under the “Proof of Reserves” tab. (Please refer to screenshot below)

Since the introduction of Trust Score in May 2019 to combat the alarming trend of inflated trading volumes & artificial rankings, we have consistently revised our algorithm (Trust Score 2, Cybersecurity, Team Presence & Incidents). Trust Score is a work in progress for us that aggregates publicly available data to help us better rank crypto exchanges and we’re excited to iterate and improve on it.

In this iteration on Trust Score, we’ve incorporated Proof of Assets into Trust Score with a 1/10 weightage, which covers the following cases:

• Full scoring – Assets published publicly (i.e. Huobi’s disclosure or Binance's disclosure on Defillama) Note: If the info is available on DefiLlama, the link will be displayed on the corresponding exchange page on CoinGecko.
• Full scoring – Assets can be verified by users through merkle root method or others (i.e.Kraken)
• Partial scoring – Audited, but wallets not published (i.e.Coinbase)
• Zero score – No disclosure or info available

Proof of Reserves Trust Score weightage with Asset data:

Here is a quick rundown on how Trust Score is weighted on scale of 0 – 10 for each criteria.

Liquidity (4 of 10) – Exchanges are one of the liquidity hubs of the crypto ecosystem, moving billions of dollars equivalent in user funds on a daily basis worldwide.

Cybersecurity (2 out of 10) – Tying in with the fact that crypto exchanges have substantial monetary holdings, their ability to maintain a secure operational environment then becomes a very important evaluation criteria.

Scale (1 out of 10) – Scale is a statistical analysis that measures and compares the trading volume and order book depth among exchanges.

Past Incidents (1 out of 10) – Past incidents is used to record if an exchange has had negative past incidents (eg. regulatory troubles, hacking incidents, withdrawal issues, user account disputes & more).

[New]Proof of Assets (1 out of 10)– Evaluates the availability of basic asset disclosure, ownership or asset audits by crypto exchanges.

[Updated]Team Presence (0.5 out of 10) – Team presence evaluates if an exchange team provides public information on its team on a site they own (minimally top management such as C-suite figures).

[Updated]API Coverage (0.5 out of 10) – API measures technical coverage, as well as data availability which are also important factors to consider for transparency purposes throughout the evaluation process.

However, note that Proof of Assets on its own is likely insufficient to thwart actors with ill intentions as there exists methods to obfuscate data, as well as catastrophic events such as private keys leaking that can lead to irreversible loss of assets. Regardless, we still think that the first step needs to be taken to raise the bar for transparency and accountability within the crypto industry.

For more detailed information, kindly refer to our blog articles below:

Trust Score explained: https://blog.coingecko.com/trust-score-explained/
Trust Score - Proof Reserves (Assets & Liabilities): https://blog.coingecko.com/trust-score-3-proof-of-reserves-asset-liabilities/