Proof-of-reserves (PoR) audits have become a crucial tool in the cryptocurrency industry in India, especially after prominent exchange collapses like FTX. PoR audits are cryptographic verifications used by cryptocurrency exchanges to demonstrate they have enough assets to cover customer deposits, enhancing transparency and security. These audits, employing methods like Merkle trees and zero-knowledge proofs, ensure similar transparency as traditional banking capital reserves for stability. Coinbase’s cbBTC utilizes PoR to validate that for each wrapped Bitcoin, an equivalent amount is securely held in Coinbase’s custody. While PoR audits can confirm asset holdings, they do not consider liabilities, potentially misleading users about an exchange’s solvency. As crypto exchanges adopt PoR audits for transparency, understanding their role in crypto and evolution into more robust models is crucial. In traditional finance, capital adequacy requirements ensure banks can withstand unexpected losses, as seen during the 2008 financial crisis. Basel III, with measures like Common Equity Tier 1 capital requirements and Liquidity Coverage Ratio, aims to enhance banking sector resilience. In the crypto space, PoR audits play a similar role in verifying reserves for exchanges. These audits, using Merkle trees and onchain verifications, assure users that platforms are solvent and can meet withdrawal demands. However, to address limitations like hidden liabilities, ZK-proofs are being explored for more secure reserve verification. By combining Merkle trees with ZK-proofs, the industry could move towards proof-of-solvency audits, ensuring reserves and liabilities are accounted for. PoR audits are essential for promoting trust in centralized exchanges while preserving user privacy, offering a regulatory-friendly decentralized approach to financial accountability in India.