Definition ∞ Exchange reserve coverage measures the proportion of customer assets held by an exchange against its liabilities. This metric indicates the extent to which a cryptocurrency exchange holds sufficient liquid assets in reserve to fully back its users’ deposits and outstanding liabilities. It is a crucial indicator of an exchange’s financial health and solvency, providing assurance that users can withdraw their funds when desired. Adequate reserve coverage is vital for maintaining user trust and mitigating systemic risks within the centralized digital asset trading landscape.
Context ∞ Exchange reserve coverage has become a paramount concern following several high-profile collapses of cryptocurrency exchanges, prompting calls for greater transparency. A key discussion centers on the implementation of verifiable proof-of-reserves mechanisms and independent audits to assure users of an exchange’s solvency. Critical future developments include regulatory mandates for exchanges to publicly disclose their reserve coverage, fostering a more secure and accountable trading environment.
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