While the intervention of regulators in the crypto industry may seem unnecessary or scary, it is worth noting that not all regulators are criminals, some are only interested in consumer protection.
On Wednesday, tThe Public Company Accounting Oversight Board (PCAOB), an industry-funded watchdog that works under the authority of the Securities and Exchange Commission (SEC). published The report of the advisor points to the so-called “Evidence of Reserves” crypto companies open to their customers to prove their solvency.
PCAOB Addresses “Backup Evidence” Report.
Proof of Reserve, also known as PoR, is a type of reporting industry companies such as crypto exchanges and stablecoin issuers have been using for the past several months since the FTX crash, to provide protection to banks.
While the crypto company described the report as good enough evidence to assure its customers of the fund’s support, the PCAOB has disputed it.
According to the PCAOB in a statement published on March 8, this type of report does not provide “useful assurance” to investors or the public because it is “unaudited” and does not comply with certain standards.
Backup Evidence it can also be considered as an action to prove the verification of the company’s assets such as the holding of the crypto exchange. Asset verification is recorded by taking a snapshot of the entire amount of a given crypto asset on an exchange.
According to the PCAOB report, this means of verification is not a good enough guarantee to prove the stability of the exchange as a procedure. “Do not address the responsibilities, rights, and obligations of the crypto entity of the digital asset holder, or whether the asset has been borrowed by the crypto entity to appear to have sufficient collateral or “reserves” beyond the customer’s request.”
The council also added that the PoR does not provide any assurance about the “effectiveness of internal controls or governance” of crypto companies. Furthermore, the PCAOB did not stop there but ended with caution to investors.
The board wrote:
Evidence of reserve reporting is extremely limited, and customers should exercise extreme caution when relying on whether there are sufficient assets to meet customer obligations.
How did we get here?
It is no longer news that the fall of FTX has attracted many negative impacts on the industry, one of which is mistrust among the crypto community. While some seem to have given up on the industry, existing companies have thrived restore false beliefs.
In the process, one of the biggest crypto companies in the industry, Binance, has started publishing evidence of backup reports as a form of “liquidity transparency” and to assure the corporate community with solvent and there is still hope for the industry.
After Binance, other crypto companies such as the Kraken, Bitgetand Crypto.com follow and publish proof of their respective reserves to promote transparency of funds in the industry.
Meanwhile, the crypto market is still in a downward trend. At the time of writing, global crypto market capitalization is currently down 1.2% as larger assets such as Bitcoin and Ethereum continue to decline by 8.1% and 7.5%, respectively, over the past 7 days.
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