Proof Of Reserves

Accountability and Regular Reviews

At Sky-Kraken, we don’t just provide the opportunity to trade cutting-edge digital assets; we strive to utilize the transparency of the open-source blockchains they operate on.

Our regular Proof of Reserves reviews allow clients to easily verify that the balances they hold are backed by real assets, all with just a few simple clicks in their account.

This advanced cryptographic accounting procedure, conducted regularly by trusted accountants, enables you to confirm that Sky-Kraken meets rigorous standards for accountability, surpassing the transparency offered by traditional financial firms.

What is Proof of Reserves?

Proof of Reserves (PoR) is a procedure carried out by an independent third-party accountant to verify that a custodian holds the assets it claims on behalf of its clients. During this process, the accountant takes an anonymized snapshot of all balances held and aggregates them into a Merkle tree—a privacy-friendly data structure that encapsulates all client balances. This ensures transparency and accountability, allowing clients to confirm that their assets are properly backed.

Proof of Reserves Process

From the anonymized snapshot, the accountant obtains a Merkle root, which serves as a cryptographic fingerprint uniquely identifying the combination of balances at the time the snapshot was taken.

The accountant then collects digital signatures generated by Sky-Kraken, which demonstrate ownership of the on-chain addresses with publicly verifiable balances. Finally, the accountant compares these balances to ensure they exceed or match the client balances represented in the Merkle tree, confirming that client assets are under Sky-Kraken’s control.

Clients can independently verify whether their balance was included in the Proof of Reserves procedure by comparing specific pieces of data with the Merkle root. Any changes made to the data, no matter how minor, will affect the root, making any tampering immediately apparent.

What Does Proof of Reserves Cover?

Spot Balances

The review includes all of your balances in the in-scope assets held at the time the snapshot was taken. As of the most recent review, the following assets are in scope: Bitcoin (BTC), Ether (ETH), Solana (SOL), USD Coin (USDC), Tether (USDT), and Ripple (XRP).

Staking Balances

If you had balances allocated to on-chain staking at the time of the snapshot, the value of your staked balance will be combined with your spot balance under a single balance.

Margin Trading

If you had margin positions at the time, your total balance will be adjusted by the positive position values.

Example 1:

• If you bought 1 BTC/USD at $30,000 on margin and your position is open, your Proof of Reserves balance will reflect a positive +1 BTC adjustment to your BTC balance. Your USD balance will remain unchanged.

Example 2:

• If you sold 1 BTC/ETH at 15 ETH on margin and your position is open, your Proof of Reserves balance will show a positive +15 ETH adjustment to your ETH balance, with no negative adjustment to your BTC balance.

Note: The futures methodology described above is effective starting with the May 2023 Proof of Reserves reviews.

Futures Balances

If you had balances in your Futures wallet at the time of the review, a separate Proof of Reserves record will exist for your futures collateral balances. These balances are adjusted by unrealized Profit and Loss for Single Collateral futures trades and will include the same in-scope assets as for spot and margin, forming part of the same Merkle Tree (with its own Merkle Leaf ID).

Example 1:

• If you had 1 BTC in your futures wallet and opened a position in BTC Perp Single Collateral with a -0.1 BTC unrealized Profit and Loss, your BTC balance under Sky-Kraken custody will be 0.9 BTC.

Example 2:

• If you had 1 BTC in your futures wallet and opened a position in BTC Perp Multi-Collateral with a -100.0 USD unrealized Profit and Loss, your BTC balance will remain 1 BTC, as the unrealized P&L is tracked in USD, which is not an in-scope asset for this review.