The debate over transparency in the cryptocurrency industry has reignited, with TRON founder Justin Sun calling out Coinbase—the largest U.S.-based crypto exchange—for failing to implement proof of reserves (PoR). As concerns about financial accountability grow in the wake of past exchange collapses, Sun argues that Coinbase's reliance on traditional audits is no longer sufficient to protect users or maintain trust.
Why Proof of Reserves Matters in Crypto
Proof of reserves (PoR) is a cryptographic verification method that allows exchanges to prove they hold sufficient assets to back user deposits. After the catastrophic collapse of FTX in November 2022—where customer funds were misused to cover corporate losses—many leading platforms adopted PoR as a standard transparency measure.
Sun emphasized that widespread adoption across the industry makes Coinbase’s refusal all the more puzzling. “When all exchanges in the industry have already implemented PoR, we are puzzled that Coinbase claims PoR is not feasible,” he stated on X (formerly Twitter). “The community isn’t expecting Coinbase to provide a perfect solution all at once, but simply revealing all the addresses is not a difficult task.”
He further pointed out that audits alone cannot prevent disasters, citing FTX again as a prime example of how even audited firms can fail spectacularly. Additionally, Sun challenged the assumption that being a publicly traded company offers immunity from insolvency. “Signature Bank is an example of this,” he noted, “and their market cap at the time was even higher than Coinbase’s.”
👉 Discover how leading crypto platforms are enhancing transparency and security today.
Coinbase’s Defense: Institutional Trust Over On-Chain Proof
In response, Coinbase CEO Brian Armstrong defended the company’s position, arguing that institutional investors prioritize regulatory compliance and annual third-party audits—conducted by firms like Deloitte—over real-time on-chain proof.
“We’re a public company,” Armstrong wrote. “If you want audits, Deloitte audits us annually… I doubt our institutional clients want people dusting all their addresses, and it’s not our place to share for them.” His comments suggest a strategic focus on attracting traditional finance players who value privacy and regulatory alignment over open-chain verifiability.
However, critics argue this approach creates a trust gap. Without public, cryptographically verifiable proof, users must rely solely on Coinbase’s word—especially concerning its newly launched Bitcoin-wrapped token, cbBTC.
The cbBTC Controversy: “Trust Me” Bitcoin?
Justin Sun has been particularly vocal about cbBTC, which he describes as “trust me Bitcoin.” Unlike native BTC, cbBTC is an ERC-20 token pegged 1:1 to Bitcoin but issued by Coinbase. Sun warns that because cbBTC lacks both proof of reserves and independent audits, there is no guarantee that each token is fully backed.
This opens the door to risks such as over-issuance or sudden freezes—especially under government pressure. “A U.S. government subpoena could seize all Bitcoin held through it,” Sun cautioned, highlighting potential legal vulnerabilities for users.
Duo Nine, a well-known crypto commentator on X, echoed these concerns: “Coinbase CEO just admitted that you got to trust them on their word. They will not provide any proof of reserves for the BTC they claim they have, nor any proof of backing for their new paper BTC called cbBTC. If they print too much paper BTC they will go the FTX route.”
Beyond Proof of Reserves: The Need for Holistic Risk Management
While PoR is a critical step toward transparency, experts agree it's only part of the solution. As the Wall Street Journal reported, “We need better risk management, more guardrails… and we need some of that installed into the crypto industry,” said Jeff Horowitz, Chief Commercial Officer at BitGo.
One major limitation of current PoR implementations is the lack of liability disclosure. An exchange might show its asset holdings at a given moment but fail to reveal its total obligations. This imbalance means users can't assess whether reserves actually cover liabilities—a crucial metric for financial health.
Additionally, some critics, including Kraken co-founder Jesse Powell, have questioned the effectiveness of Merkle-tree-based PoR systems, calling them a “misrepresentation” that may give users a false sense of security.
Industry-Wide Adoption Shows Feasibility
Despite Coinbase’s stance, numerous major exchanges have successfully implemented proof of reserves:
- Binance
- Kraken
- OKX
- Bitfinex
- Huobi
- Gate.io
- Deribit
- Crypto.com
Binance’s former CEO Changpeng Zhao (CZ) was among the earliest advocates, urging the entire industry to adopt Merkle-tree proofs after the FTX collapse. In a November 2022 post, he declared: “All crypto companies should publish proof of reserves.”
This growing consensus underscores Sun’s central argument: if dozens of exchanges can implement PoR, why can’t Coinbase?
👉 See how top exchanges are building trust through transparent reserve practices.
Frequently Asked Questions (FAQ)
Q: What is proof of reserves (PoR)?
A: Proof of reserves is a cryptographic method used by crypto exchanges to demonstrate they hold enough assets to cover user balances. It often involves using Merkle trees to verify wallet holdings without exposing sensitive data.
Q: Why hasn’t Coinbase implemented PoR?
A: Coinbase argues that its status as a publicly traded company and its annual audits by firms like Deloitte provide sufficient transparency for institutional investors. It also cites privacy concerns for large clients.
Q: Is cbBTC safe to use?
A: While cbBTC is designed to be 1:1 backed by Bitcoin, it currently lacks public proof of reserves or audit verification. This means users must trust Coinbase’s internal controls without independent confirmation.
Q: Can proof of reserves prevent another FTX-like collapse?
A: PoR alone cannot prevent fraud, but it significantly reduces the risk by enabling users to verify that an exchange holds the assets it claims. However, combining PoR with proof of liabilities offers a more complete picture.
Q: Are audits enough for exchange transparency?
A: Traditional audits are periodic and not real-time. They can be manipulated or outdated by the time they’re published. In contrast, PoR offers more frequent, on-chain verifiable snapshots.
Q: What’s the difference between native BTC and wrapped tokens like cbBTC?
A: Native Bitcoin operates on the Bitcoin blockchain, while wrapped tokens like cbBTC are ERC-20 tokens issued on Ethereum. They rely on custodians (like Coinbase) to maintain the peg and can carry counterparty risk.
Final Thoughts: Transparency Is Non-Negotiable
As the crypto ecosystem matures, user expectations for transparency are rising. The FTX collapse was a wake-up call: trust alone is not enough. While Coinbase plays a pivotal role in bridging traditional finance and digital assets, its resistance to PoR places it at odds with industry trends.
Justin Sun’s critique highlights a growing demand for self-regulation through technology, not just compliance through bureaucracy. In an era where decentralization and verifiability are core values, relying solely on audits and corporate reputation may no longer suffice.
👉 Stay ahead in crypto with platforms committed to full reserve transparency and user protection.