Exchange security has long been measured by a single headline number: reserve ratio. It is a useful number, but it answers only one question. It tells you whether assets exist in amounts that cover liabilities at the moment of measurement. It does not tell you how those assets are stored, who can move them, or how quickly they could be reached in a crisis.

Gate's latest move is to publish a second layer of disclosure. Its new PoSEC system, described as proof of fund security, aims to show how assets are stored and how much of them is protected offline. The announcement reports cold storage coverage of 104.58% and says 88.26% of stored assets are held in cold storage. It adds that an independent third-party audit has been introduced and that verification is underway.

A snapshot versus a structure:
A proof of reserves report is a snapshot. It captures balances at a point in time. A storage structure is more durable. It describes the custody model: how keys are generated and held, how many people or systems must approve a movement, and how much of the asset base is taken out of reach of routine online access. Users care about both, because a snapshot can be accurate and still hide a fragile structure.

Why the cold-storage split is a signal:
Hot wallets exist for liquidity, and every exchange needs some. But the larger the hot-wallet share, the larger the attack surface. Cold storage reduces that exposure, although it can slow withdrawals if the operational process is poorly designed. A transparent split between hot and cold assets lets users judge both security and operational readiness. Gate's disclosed 88.26% cold-storage share is a figure users can track over time, provided it is updated consistently.

Reading the coverage figure carefully:
The 104.58% cold-storage coverage figure should be read with its definition in mind. Coverage above 100% means the cold-stored assets exceed the liability base the system uses. That is a meaningful buffer if the base is defined consistently. Users should ask what the base includes, how it is calculated, and whether it moves with the business. A clear definition turns a marketing number into a verifiable one.

Independent verification is what makes the claim useful:
Gate says an independent third-party audit mechanism has been introduced and is underway. Verification is the difference between a self-reported claim and an externally tested one. A useful audit covers key management, custody controls, reconciliation between reported and on-chain holdings, and the procedures for responding to an incident. The scope, the auditor, the period and the published findings should all be easy to find.

A practical checklist for choosing an exchange:
Look beyond the reserve ratio. Check the cold-storage share and whether it is reported regularly. Ask how the liability base is defined and whether it is independently checked. Confirm who audits the custody model and whether findings are public. Find out how withdrawals are handled during stress, and what protection exists if something goes wrong. Those answers say more about security than any single number.

What would make this more credible:
Three things would strengthen Gate's position: the final audit results published in full, a consistent schedule for updating the storage figures, and clear documentation of the methodology. If those arrive, PoSEC could set a useful standard for the industry. If they lag, the headline numbers will carry less weight.

Bottom line:
Adequate reserves are necessary, but they are not sufficient. The more useful question is whether an exchange can show, in verifiable detail, where assets are kept and how they are protected. Gate's PoSEC launch moves the conversation in that direction. Users should judge it by the audit that follows, not by the announcement alone.

This post is general information, not investment advice.
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Reserves Tell You How Much. PoSEC Asks Where It Sits.
For years, the standard question about an exchange was simple: does it hold enough assets to cover what users are owed? Proof of reserves answered that question, and it still matters. But a reserve ratio says nothing about how those assets are stored. Two exchanges can show identical reserve numbers while keeping very different shares in cold storage, hot wallets or third-party custody. That gap is what Gate is now trying to close.

What Gate announced

Gate has launched what it describes as the industry's first PoSEC, or proof of fund security, system. Where PoR confirms that assets exist and cover liabilities, PoSEC focuses on the storage structure behind those assets and on the coverage available to protect them. Gate's announcement reports cold storage coverage of 104.58% and says 88.26% of stored assets sit in cold storage. It also says an independent third-party audit mechanism has been introduced and that verification is underway.

Those are Gate's own figures. I could not confirm them from an independent source, and the audit is still in progress, so the results should be read as a company disclosure until the audit concludes.

Why cold storage share matters

Hot wallets are connected to the internet and are needed for daily withdrawals. Cold storage keeps keys offline and is far harder to drain through a remote attack. A higher cold-storage share generally means less of user money is exposed to a single compromise. The question for any exchange is not only whether it has the funds, but how many of those funds would be exposed if a hot wallet were breached.

What "coverage above 100%" can and cannot mean

Cold storage coverage above 100% suggests that cold-stored assets exceed the stated liability base that the system measures against. That can be reassuring, but it depends on how the liability base is defined, how often it is updated, and whether it includes every product. A figure is only as useful as its definition, so the methodology matters as much as the headline.

The audit gap is the real test

Any security claim is only as strong as its verification. Gate says an independent third-party audit mechanism is in place and that verification is underway. The key question is what the auditor will examine: wallet control, key management, custody procedures, and the reconciliation between reported and on-chain balances. Users should look for the scope, the auditor's name, the period covered, and whether findings are published in full.

What users should ask any exchange

Reserve ratios are the start of the conversation. Users should also ask for the share of assets in cold storage, the custody arrangements for each asset, how often balances are reconciled, whether an independent auditor has reviewed key management, what happens to user funds in a security incident, and how any insurance or compensation is funded and capped.

The bottom line

PoSEC is a step beyond proof of reserves, because it addresses where assets are kept and how they are protected. Gate's disclosed figures are encouraging, but they are company-reported, and the audit is still in progress. A good exchange should make its security data verifiable, specific and regularly updated, not just impressive at launch.

This page contains third-party content and does not constitute any advice, nor does it represent Gate's endorsement of such views. For details, please see disclaimer.

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Comment 4

This is translate content : Mountain Peak Ryakan hour ago

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This is translate content : Mountain Peak Ryakan hour ago

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PrinceMagsi7862 hours ago

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PrinceMagsi7862 hours ago

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