Deribit officially ceased its daily Merkle tree proof-of-reserves (PoR) check on September 1, 2024, citing a major shift in its asset custody strategy. The exchange recently migrated 90% of its client assets to Coinbase Custody, a move intended to enhance institutional-grade security and storage. By moving the vast majority of assets to a third-party regulated custodian, Deribit argues that its previous self-managed Merkle check is no longer the most effective way to verify solvency, opting instead to rely on the security protocols of Coinbase and traditional auditing.
Previously, Deribit users could independently verify that their account balances were included in the exchange’s total reserves through a daily cryptographic Merkle check. With the new arrangement, the exchange is leaning heavily on its status as a licensed entity under Dubai’s Virtual Assets Regulatory Authority (VARA). While this provides a layer of institutional oversight, the transition has drawn scrutiny because VARA reports and audited financial materials are significantly less accessible to the general public than a real-time, on-chain cryptographic proof.
For US-focused investors and institutional traders, the move to Coinbase Custody adds a layer of perceived safety, as it involves a US-listed company with stringent reporting requirements. However, the removal of the PoR tool highlights a growing tension in the crypto industry: the trade-off between trustless, automated transparency and traditional regulatory compliance. As global regulators demand more formal structures, some exchanges are moving away from the 'verify, don't trust' ethos of the early crypto era toward a more corporate, audit-based framework.
Moving forward, traders should monitor Deribit’s upcoming audited reports and VARA compliance filings to ensure they provide sufficient transparency. If these documents are not released frequently or lack detail, it could lead to concerns regarding the real-time solvency of the platform, especially during periods of high market volatility. The industry will be watching to see if other major derivatives platforms follow suit by outsourcing custody to regulated third parties at the expense of public-facing proof-of-reserves tools.