Sounds Like a You Problem

We get it — you don’t just HODL, you BUIDL. You’ve worked hard to create a platform that brings decentralization to more users. And you know the rules: Don’t trust, verify. Not your keys… But let’s face it, your transparency reporting is nonexistent or not up to par. You know it, your customers know it, and soon, regulators will, too. 

The vast majority of exchanges, crypto lenders and custodians are behind in transparency reporting. This open secret continues to plague the industry, despite the availability of products and processes that can provide insight while maintaining privacy. Customers, especially large institutional clients, are learning about what’s possible and what custodians and exchanges should provide. Regulators are certainly soon to follow.

As we saw in last week’s congressional hearings covering Digital Assets and the Future of Finance, the notion of providing real-time reports on proving collateral over reserves is at the top of the list for key industry leaders. One of the first to testify, Jeremy Allaire of Circle, mentioned that the company receives regular attestations from a leading public accounting firm. And a legend in the making, Sam Bankman Fried, CEO of FTX.com, had an eye on the future when he noted that these attestations can, and will be, more real-time.

Transparency reporting services provide multiple benefits, in addition to creating trust and fostering the adoption of digital assets. Here are some advantages of these systems:

  1. They provide internal controls, financial hygiene and allow your platform to easily follow best practices.
  2. They serve as a market differentiator. When your customers know where their stables are and that their crypto on your platform is properly collateralized, they will place more capital with increased confidence.
  3. With regulatory uncertainty and the threat of new laws, you can get ahead of regulators to reduce impacts on your operations down the line. Whether required by law or whether they’re adopted as a form of self-regulation, transparency reports are a valuable currency.

One of the most compelling, but still misunderstood transparency tools in our industry is Proof of Reserves. Exchanges, lenders, wallets and custodians can provide their clients, prospects and regulators with independent reporting plus cryptographic customer verification tools, allowing each customer to check the reserves of the provider while preserving privacy of all users. Proof of Reserves is required for New York’s BitLicense, Wyoming’s SPDI license, as well as in jurisdictions outside the US, with more coming soon. 

Armanino is at the forefront of bringing transparency to digital assets and fostering trust in markets. Through TrustExplorer, a suite of crypto-focused solutions assurance solutions, Armanino enables companies to show their customers and the world why digital assets are simply superior. Let us help you make transparency reporting work for you and your customers. 

Learn more about Proof of Reserves and contact our Digital Assets & Blockchain group at DigitalAssets@armaninoLLP.com.

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© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.