In a bold move highlighting growing tensions within the cryptocurrency industry, TRON founder Justin Sun has publicly called out Coinbase — the largest U.S.-based crypto exchange — for failing to implement proof of reserves (PoR). His critique comes amid increasing scrutiny over financial transparency in the wake of high-profile collapses like FTX, and as institutional interest in digital assets continues to rise.
The Push for Proof of Reserves Gains Momentum
Proof of reserves (PoR) has become a cornerstone of trust in the post-FTX crypto landscape. After the dramatic implosion of FTX in November 2022 — where customer funds were misused to cover corporate losses — investors and users demanded greater accountability from exchanges. In response, many leading platforms adopted PoR mechanisms to demonstrate they hold sufficient assets to back user deposits.
Platforms like Binance, Kraken, OKX, Bitfinex, and Crypto.com now regularly publish PoR reports, often using Merkle-tree structures to verify wallet holdings without compromising user privacy. These disclosures aim to reassure users that their funds are secure and fully backed.
👉 Discover how leading exchanges are building trust through transparent reserve verification.
Yet, despite industry-wide adoption, Coinbase remains an outlier. The exchange has chosen not to publish PoR data, relying instead on traditional annual audits conducted by Deloitte. This stance has drawn sharp criticism from industry figures, most notably Justin Sun.
Justin Sun Challenges Coinbase’s Transparency Claims
Sun argues that regular audits alone are insufficient safeguards. In a widely shared post on X (formerly Twitter), he questioned why Coinbase, among all major exchanges, continues to resist implementing PoR.
“When all exchanges in the industry have already implemented PoR, we are puzzled that Coinbase claims PoR is not feasible. 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.”
Sun emphasized that audits cannot prevent fraud or mismanagement — pointing to FTX, which had audit reports before its collapse. He also dismissed the idea that being a publicly traded company inherently ensures solvency, citing the failure of Signature Bank, which had a market cap larger than Coinbase at the time of its shutdown.
His core argument: transparency should be non-negotiable. Even basic steps like disclosing wallet addresses would go a long way in building user confidence.
Coinbase’s Defense: Institutional Standards Over On-Chain Proof
Coinbase CEO Brian Armstrong pushed back against the criticism, defending the company’s reliance on third-party audits and regulatory compliance.
“If you want audits, Deloitte audits us annually, we’re a public company. I doubt our institutional clients want people dusting all their addresses, and it’s not our place to share for them.”
Armstrong suggested that revealing wallet addresses could compromise client privacy, especially for institutional investors who value discretion. He framed Coinbase’s model as one built for mainstream finance integration — where traditional financial controls outweigh on-chain transparency measures.
However, critics argue this approach places too much faith in centralized institutions and ignores lessons from past failures. As Sun noted, trust without verifiability is fragile.
Concerns Over cbBTC: A “Trust Me” Asset?
The debate intensified around Coinbase’s launch of cbBTC, a new Bitcoin-wrapped token designed to compete with WBTC (Wrapped Bitcoin). Unlike WBTC, which is backed 1:1 with Bitcoin held in custody and subject to periodic attestations, cbBTC does not currently offer proof of reserves or independent audits.
Sun labeled cbBTC as “trust me” Bitcoin, implying users must take Coinbase’s word that the token is fully backed. This lack of verification raises red flags, particularly regarding potential over-issuance or regulatory seizure risk.
“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.”
— Duo Nine, X user and crypto commentator
There are also legal concerns: if U.S. authorities issue a subpoena, Bitcoin held via cbBTC could be frozen or seized — something that undermines the decentralized ethos of Bitcoin itself.
👉 See how new wrapped assets are reshaping liquidity while raising transparency concerns.
Are Proof of Reserves Enough?
While PoR is a step forward, experts warn it’s not a silver bullet. Simply proving asset holdings doesn't account for liabilities. A company could show robust reserves today but still be insolvent if its debts exceed assets.
Jeff Horowitz, Chief Commercial Officer at BitGo, told The Wall Street Journal:
“We need better risk management, more guardrails… and we need some of that installed into the crypto industry.”
True financial health requires proof of solvency — a combination of verified assets and liabilities. Without both, users get an incomplete picture.
Moreover, some critics, including Kraken co-founder Jesse Powell, argue that Merkle-tree-based PoR can be misleading. While technically sound, these proofs can be manipulated or presented out of context, creating a false sense of security.
Core Keywords Driving Industry Trust
This debate centers on several key concepts shaping crypto's future:
- Proof of reserves (PoR)
- Cryptocurrency transparency
- Exchange solvency
- Financial accountability
- Regulatory compliance
- Bitcoin wrappers
- User fund security
- Crypto risk management
These terms reflect growing demand for systems that balance innovation with investor protection.
Frequently Asked Questions (FAQ)
Q: What is proof of reserves (PoR)?
A: PoR is a cryptographic method used by crypto exchanges to prove they hold sufficient assets to cover user deposits. It often involves publishing wallet addresses and using Merkle trees to verify balances without exposing private information.
Q: Why hasn’t Coinbase implemented PoR?
A: Coinbase argues that annual audits by firms like Deloitte and its status as a public company provide sufficient oversight. It also cites privacy concerns for institutional clients as a reason not to disclose wallet addresses.
Q: Is proof of reserves enough to ensure exchange safety?
A: Not entirely. While PoR verifies asset holdings, it doesn’t confirm liabilities. A truly solvent exchange should also disclose debt obligations for full transparency.
Q: What is cbBTC?
A: cbBTC is Coinbase’s native wrapped Bitcoin token, fully backed by Bitcoin held in custody. However, unlike competitors like WBTC, it currently lacks public proof-of-reserves audits.
Q: Can U.S. regulators seize cbBTC?
A: Yes. Since cbBTC is issued and managed by a U.S.-based entity, it is subject to regulatory actions such as subpoenas or freezes — a point of concern for decentralization advocates.
Q: How can users protect themselves?
A: Users should prioritize platforms with transparent reserve practices, use self-custody wallets when possible, and diversify holdings across multiple trusted services.
👉 Learn how to verify exchange trustworthiness and protect your digital assets today.
Final Thoughts
Justin Sun’s critique of Coinbase underscores a fundamental divide in the crypto world: between traditional financial frameworks and blockchain-native transparency. While audits serve a purpose, they lack the real-time verifiability that on-chain proofs offer.
As the industry evolves, user expectations are shifting. Trust must be earned through actionable transparency, not just corporate reputation. For Coinbase, resisting PoR may preserve short-term privacy benefits — but risks long-term credibility in a space built on decentralization and proof-based systems.
The message is clear: in crypto, don’t trust — verify.