The POR model is a well-established auditing methodology for crypto companies aiming to assess the underlying reserves. According to the POR process, third-party auditors analyse the blockchain information indicating the balance of company assets. Next, the auditors compare their findings with the company’s actual reserves, ensuring that the reserves match or exceed the corresponding crypto assets. As a result, auditors verify that companies can honour their crypto holders’ withdrawal requests at any given time.
The Three Stages of a Comprehensive Crypto Audit
To thoroughly understand the nature and significance of the POR process, it is necessary to analyse the entire crypto audit procedure. Crypto audits are divided into three general categories, each presenting a crucial confirmation of the company’s functioning capabilities.
Proof of Liabilities
The POL process examines the exchange’s total liabilities toward its platform users in aggregate. All digital exchange platforms allow users to open trading accounts and store a certain amount of crypto assets. These assets on the user side are liabilities for the exchange platform, as it should return deposited funds at any given time. This audit process ensures that the exchange platform reserves cover all outstanding liabilities if the users withdraw their funds at once.
Proof of Reserves
As discussed, the proof of reserves procedure ensures that crypto companies like exchange platforms possess enough funds to account for all potential liabilities. In simple terms, POR validates the company’s claim that they have the corresponding assets of their customer deposits and are ready to distribute them if requested by their users. POR is a quintessential procedure in the world of crypto, as it validates the solvency of crypto platforms. With numerous counts of fraud, poor asset management and other activities, POR has become necessary to evaluate crypto companies.
Proof of Solvency
With the combined findings from the POL and POR audits, the POL procedure finalises the verdict on the overall company assets and liabilities. With two previous procedures, auditors can determine whether the company’s total assets outweigh total liabilities. If so, the crypto company can function properly and honour its obligations without trouble.
The Purpose of POR Procedures
The POR auditing model is an excellent way to evaluate crypto companies and their ability to satisfy ongoing liabilities. With POR validation, the respective users of a platform can be assured that they will be able to withdraw deposited funds at their convenience.
Naturally, the POR process also gives the customers peace of mind, as they can be assured that their funds are completely safe and accounted for within the company’s asset reserves. Currently, the crypto world is experiencing an inflow of regulations, and soon enough, all custodian entities, like exchange platforms, will be obligated to conduct POR procedures.
Summary
In conclusion, the POR model of evaluating solvency is becoming more popular and established, especially in light of recent fraud and financial crime occurrences in the crypto landscape. It is widely believed that the POR evaluation will be a necessity in the near future as the crypto world matures and adopts standardised regulations.
