Solv Co-Founder Highlights Challenges in On-Chain Proof of Reserves

Solv co-founder Ryan Chow recently shared his perspective on the challenges associated with On-Chain Proof of Reserves. In a May 30 post, Chow highlighted several issues, including the potential attack vectors and the lack of verification from major audit firms. He referenced comments by Michael Saylor, who has expressed concerns about the risks involved in this method. Chow noted that while On-Chain Proof of Reserves offers transparency, it does not inherently reveal information about liabilities or debt obligations, which are crucial for a comprehensive audit.

Chow emphasized that Chainlink’s Proof of Reserve (PoR) solution, adopted by Solv in the first quarter of this year, helps build trust among investors by verifying 1:1 Bitcoin reserves on-chain without exposing actual wallet addresses. This system, which uses a decentralized oracle network to publish signed reserve proofs publicly, has been adopted by firms like Coinbase, BitGo, and 21Shares to support their Bitcoin-backed financial products. Chow also mentioned that Solv focuses on Bitcoin-backed products for targeted finance markets, including Shariah-compliant finance and RWA-backed Bitcoin yield product offerings. He suggested that these products might attract interest from family office investors and sovereign wealth funds, although specific adoption rates or market size information were not shared.

Michael Saylor, on the other hand, has warned that existing On-Chain proof-of-reserves methods carry high risk, comparing this practice to revealing private bank account details online to any viewer. Saylor emphasized that security must be the top priority for institutional participants and argued that traditional audits by major firms remain the most trusted option. He noted that on-chain balances alone do not cover liabilities or obligations, and a full balance sheet audit demands checks on both assets and debts. Saylor pointed to Sarbanes-Oxley-style rules in the U.S. as a strong precedent for ensuring comprehensive audits.

In response to Saylor’s concerns, Chainlink liaison Zach Rynes explained how the PoR system protects wallet privacy effectively. Independent auditors verify Bitcoin reserves and sign data cryptographically for on-chain posting. This process removes the need to reveal actual wallet addresses to observers, addressing one of the key concerns raised by Saylor. Despite the debate over whether on-chain proofs can fully satisfy liability and balance sheet checks, supporters believe that combining reserve proofs and traditional audits could resolve these gaps. Ongoing trials will shape whether these reserve proofs become an accepted standard in the industry.

This debate highlights a core challenge in the crypto industry: balancing transparency with effective security. On-Chain Proof of Reserves offers a clear view of asset backing for users but does not inherently reveal information about liabilities or debt obligations. Traditional audits provide comprehensive checks but demand more time and higher fees. Institutions weighing crypto exposure must consider both proof methods and audit processes. Future developments may blend on-chain proofs with traditional audits for improved assurance, and stakeholders’ opinions will likely drive experiments across verification and compliance strategies.

As digital finance expands, regulators and market players must develop clear verification rules. Blending on-chain proofs with traditional audits may become an industry standard practice. Investor confidence will depend on both transparency and rigorous control measures. It remains uncertain which verification method will dominate in the coming years. Collaboration between projects, auditors, and regulators is essential for progress. Feedback from institutions and policymakers can also shape future best practices, ensuring that the industry continues to evolve in a secure and transparent manner.