The following is a guest post and analysis from Shane Neagle, Editor In Chief fromThe Tokenist.
Answering the question, Saylor made it apparent he is not a fan of the idea because:
“It actually dilutes the security of the issuer, the custodians, the exchanges and the investors. It’s not a good idea, it’s a bad idea. It’s like publishing the addresses and the bank accounts of all your kids and the phone numbers of all your kids. And then thinking, somehow, it makes your family better.”
Many influencers have already likened such sentiment to Sam Bankman-Fried. It was during the collapse of his FTX crypto exchange when the term proof-of-reserves (PoR) was introduced to the wider public. This prompted Binance, the world’s largest crypto exchange, to implement its own PoR system in late 2022.
Others have also likened Saylor to Do Kwon, having headed the collapsed Terra (LUNA) blockchain project, powered by algorithmic stablecoins, yields, and Bitcoin reserves. After the catastrophic cascade of crypto bankruptcies during 2022, it is reasonable to be cautious, but is Michael Saylor’s stance as problematic as some make it seem?
Pushed by the collapse of Mt.Gox exchange in 2014, proof-of-reserves (PoR) was first floated as a way to instill trust in custodial institutions. Although Mt.Gox is commonly known as a hack, wherein up to 850k BTC was pilfered from hot wallets, the exchange was also mishandled outside technical security.
Namely, Mt.Gox CEO Mark Karpeles, was convicted for tampering with the exchange’s records in order to inflate the company’s holdings, Karpeles received a 2.5-year sentence that was suspended for four years in early 2019. Following the worst year of 2022 for the crypto sector, exchanges were scrambling to lift confidence.
Just using the example of imploded BlockFi, the vulnerability of asset holding follows a clear pattern across the board:
If a custodial institution holds 1 BTC, it generates a liability for the user for that 1 BTC. Otherwise, in a self-custodial scenario, the user would generate their own liability.
But what if the custodial party wants to increase attraction to their business?
Then the users’ holdings would be utilized to offer crypto-backed loans and yields on savings accounts.
Under the hood, this would mean that the ideal 1:1 redemption liquidity would be stretched to other parties. In the case of BlockFi, this was Three Arrows Capital (3AC).
And if liquidity is stretched (diluted), the initial depositor can no longer count on getting their 1 BTC as reliably in all market conditions.
This pattern created a PoR race in 2022, aiming to reveal which types of assets are covered, by how much, how frequently they are audited, and by whom.
However, even shortly after the FTX collapse, as Binance hurried to report its PoR, it became obvious there are some inherent problems with this approach.
In the global system of fractional reserve banking, it is not possible to redeem all the money if all the banks’ clients were to suddenly attempt to withdraw. With that said, institutions checking on banks, such as FDIC, take into account both their assets and liabilities to determine their overall state of solvency.
If BTC addresses can be reliably linked to specific holders, further insight into asset ownership and distribution becomes possible. The problem is, how to check if entities holding BTC hold the amounts they claim to hold? There are multiple ways in which this can be manipulated:
At the end of the line, PoR audits are not standardized, which means there is loose space wherein exchanges can selectively disclose information, use varying methodologies, or omit critical details, ultimately undermining the consistency, transparency, and trustworthiness of the proof-of-reserves process.
But, Strategy would fall out of line if it were to suddenly start revealing BTC wallet addresses, for which there is zero obligation. Conversely, Strategy could incur liability and lose trust if on-chain activity would become a subject of scrutiny, misinterpretation, and hacking attempts.
Moreover, if Strategy’s BTC holdings are held in cord storage or multi-signature wallets, which is likely, public disclosure of wallet addresses would go against custodial best practices which are also regulated. In short, by doing so, Strategy would be perceived as a very unserious company.
Strategy’s overall goal remains the same – raise capital by selling new MSTR shares to buy more Bitcoin, as an appreciating asset due to its fixed scarcity. As of Q1 2025, Strategy reported 65% completion of this “21/21” plan to raise $42 billion.
To attract investors, Strategy launched Series A Perpetual Strike Preferred Stock (STRK) with an 8% cumulative annual dividend. From June 30th, STRF is another perpetual preferred stock with a dividend at 10%, payable quarterly. Other than offering higher yield, STRF is also non-convertible as a form of risker income that could go up to 18%.
At the end of the line, Michael Saylor is not printing new Bitcoin and not overleveraging to the extreme extent we’ve seen with SBF or Do Kwon. In an interview to Financial Times, he noted that “Bitcoin could fall 90% and stay there for four or five years, and we would still be stable,”
However, such a scenario would be far removed from concerns related to Strategy’s proof-of-reserve, whether it would be adopted as a plan or discarded as a liability. Ultimately, the relevance of PoR as applied to Strategy seems a conflation of categories.
Or rather, it seems that the justified energy gained from harsh 2022 lessons is misdirected.
