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Solvency Transparency: Measuring and rating the financial health of crypto exchanges

February 12, 2024

Post-FTX, a lot of discussion has centred on how exchanges can take steps to reassure the market about their financial health, and how to make disclosures that restore trust in a sector beset with issues.

The event has prompted exchanges to begin proactively disclosing data on their assets by publishing their public wallet addresses. This is now widely referred to as ‘proof of assets’. Some venues have gone further still in providing detail on how they are engaging third parties to verify their holdings through procedures such as Merkle tree audits and user asset verification.

There is still wide variance over the breadth and depth of those disclosures, but these first steps will undoubtedly drive other venues to follow suit and establish what will become industry standards in the future.

Using that data, we have created a Solvency Transparency index, providing investors and institutions with critical insights on the financial health of cryptocurrency exchanges.  

The index takes data disclosed by exchanges on asset holdings and audit procedures, using it to create a clear and simple index comparing and scoring financial transparency across venues.

Read on to find out more about how we've constructed the index and which exchanges appear in our inaugural Top 10.

What does the index do?

What goes into the scoring?

We believe actions exchanges are taking now will lead to an established process on asset disclosure and transparency in the future.  This will become market standard.  To help build the foundations of those standards, we have identified the key characteristics underpinning good solvency transparency for exchanges and used them to create our index. The six variables are:

Where does the data come from?

Index data is taken from publicly available information, including disclosures by exchanges and exchange auditors; as well as on-chain information on Etherscan or in Hoptrail's own datasets.

Asset data covers only blockchains that we support and is not an exhaustive, complete or comprehensive list of actual assets or reserves held by the exchange on behalf of its users or customers.  In some cases, hot and cold wallet designations are approximations based on transaction patterns.


How to interpret the index?

We view any voluntary disclosure as positive, regardless of how detailed those disclosures are.  We do not penalise exchanges seeking to provide more information to the market about their financial health; nor do we penalise exchanges who have not yet disclosed.

The purpose of this index is to collate information on exchange disclosures and measure them against Hoptrail’s checklist set out above.  This is designed to give market participants with both a snapshot on an exchange’s assets (and the quality of those assets) and the extent to which those venues are being transparent.  

We expect our variables to change and improve over time as more and more information is provided.  We also ensure that we track the performance of exchange disclosures over time, helping guide the market on who improves and who doesn’t.  


SOLVENCY TRANSPARENCY TOP 10

Our inaugural Solvency Transparency Top 10:

For anyone seeking more information, visit our website and navigate to the Leaderboards page, where you will see the Top 100 exchanges and DEXs on our AML Leaderboards.

Want to find out more?

If you’d like to find out more about our Solvency Transparency index, get in touch with the team at info@hoptrail.io or reach out to us here.

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