Definition ∞ Exchange solvency indicates a cryptocurrency exchange’s financial capacity to meet its short-term and long-term financial obligations. This refers to the exchange possessing sufficient assets to cover all liabilities, including user deposits. Maintaining solvency is paramount for an exchange to operate sustainably and retain the trust of its users. A solvent exchange assures users that their funds are available for withdrawal upon request.
Context ∞ The topic of exchange solvency gained significant prominence following major industry collapses, sparking a widespread demand for greater transparency. Discussions frequently center on the implementation of verifiable proof-of-reserves audits to confirm an exchange’s asset holdings. Regulatory bodies are increasingly exploring mechanisms to mandate regular solvency disclosures and establish clear guidelines for asset management. News often reports on solvency concerns or assurances from exchanges, impacting market sentiment and user confidence.
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