Affidavit of Solvency
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Solvency definition Solvency refers to a company's ability to cover its financial obligations. But it's not simply about a company being able to pay off the debts it has now. Financial solvency also implies long-term financial stability.
Affidavit of Solvency: A sworn statement, which indicates that the transfer of assets an individual or entity is about to make will not render that individual or entity bankrupt or insolvent.
Proof of Solvency is the result of both the Proof of Reserves and the Proof of Liabilities, with reliable mechanisms to validate that the total amount of assets held in custody is larger than the total amount of liabilities.
Proof of liabilities The exchange's liabilities are the outstanding cryptocurrency balances due to its clients. The sum of all customer account balances is used to compute the exchange's total liabilities. To determine solvency, the computed amount is later contrasted with the total reserves.
In finance and particularly in blockchain systems, proof of solvency consists of two components: Proof of liabilities: proving the total quantity of coins the exchange owes to all of its customers. Proof of reserves (also known as proof of assets): proving ownership of digital assets (i.e., coins) in the blockchain.
The Proof of Reserve shared by most exchanges isn't enough to grant their clients the transparency and trust they deserve for the following reasons: It doesn't prove actual ownership and control of the keys to those wallets.
