In the absence of a clear regulatory framework, experts urge the government to mandate transparency measures to safeguard investor funds and rebuild public trust.
New Delhi: With investor confidence in crypto exchanges still reeling from global scandals like the FTX collapse, calls are mounting for India to mandate Proof of Reserves (PoR) for all Virtual Asset Service Providers (VASPs). Experts say such a move is essential to protect consumer interests, improve transparency, and strengthen trust in the fast-growing yet largely unregulated Indian crypto ecosystem.
Proof of Reserves is a cryptographic auditing method that allows exchanges to publicly prove they hold sufficient assets to match customer deposits. By leveraging technologies such as Merkle trees, PoR enables platforms to publish verifiable data on their reserves without compromising user privacy. When implemented correctly, it allows users to independently verify that their funds are safe, providing much-needed reassurance in an uncertain environment.
Beyond individual peace of mind, PoR can play a systemic role by deterring mismanagement, minimizing the risk of panic withdrawals, and fostering long-term public confidence. Open, verifiable disclosures can also expose irregularities early, serving as a market-based check on dishonest practices.
In India, where millions of retail investors have entered the crypto space despite a lack of statutory investor protections, the urgency is especially pronounced. While the government has brought VASPs under anti-money laundering guidelines, there remains no requirement for transparent custody or reserve disclosures.
Industry watchers argue that, until comprehensive crypto legislation is enacted, mandating PoR would offer a vital layer of interim protection. “It’s about bridging the trust gap,” said one industry analyst. “Without regulatory clarity, the onus is on transparency. Proof of Reserves is a low-cost, high-impact way to do that.”
Such a mandate could set a precedent for responsible industry conduct and lay the groundwork for future regulation. While PoR is not a substitute for full oversight, its implementation would represent a significant step toward a safer and more accountable virtual asset market in India.
As the crypto sector continues to expand, the debate over investor protection is intensifying. With trust hinging more on voluntary ethics than enforceable rules, many believe it’s time for the government to act and Proof of Reserves could be the first step in the right direction.
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