By Bob Ras, CEO and Co-founder of Sologenic, Co-creator of Coreum
Proof of reserves has dominated industry conversation since the FTX collapse in early November.Investors’ expectations were already high.People want to give their time, money and effort to projects likely to make it out of this crypto winter.But the downfall of FTX has sparked increased insolvency fears that have pushed the industry into full-blown chaos.
Recently, the Federal Reserve issued a statement on the risk of crypto assets to banking organizations, warning the public about the risk of fraud, legal uncertainties and contagion risks.This notice is emblematic of the dire need for crypto to straighten up or risk mass extinction.Massive regulation and government involvement (and potential overreach) can only be expected if crypto can’t establish transparency.
Some large auditors continue to work with crypto companies while others are fleeing.I believe the isolated firms who are acting first will be on the right side of history and can be a big part of re-establishing credibility for our besieged industry.
Last month, French auditing firm Mazars announced pausing all work for crypto clients, echoing a broader sentiment from the traditional finance industry as companies continue to distance themselves from crypto entirely.
Mazars’ exit undoubtedly casts crypto in an iffy light.Fortunately, accounting’s Big Four remain committed to their work with crypto clients.And this should be celebrated and embraced by industry players.
Deloitte currently works with Coinbase, which went public via direct listing in 2021, for its auditing and accounting services.Last month, Ernst & Young revealed a partnership with crypto tax and accounting technology provider TaxBit.
Auditing firms that are doubling down on their support for crypto projects by continuing or establishing relationships with crypto clients are showing commendable bravery by doing the work.
Auditors’ support is essential but it isn’t enough to bring the industry back to life.The real work lies in showing proof of solvency, a formula that includes both proof of reserves and proof of liabilities.With proof of solvency, companies can validate that the amount of assets is larger than the amount of liabilities, sufficiently ensuring users’ investments are safe and sound.
Providing transparency and trustworthy attestations to prove solvency is the only proof that is proof enough.
Some exchanges have incorporated these procedures into their platforms from the beginning but for the most part, implementing proof of solvency may take time.
It’s important to do it right now more than ever.These are painful times, full of needed introspection and new remedies, but those who make the hard moves will be rewarded.And avoid disappearing, which should be more than enough incentive.
About the author:
Bob Ras is the co-founder of Sologenic, a tokenization ecosystem utilizing the on-demand tokenization of a wide range of assets.Built on top of the XRP Ledger, Sologenic facilitates investing and trading between crypto and non-blockchain assets.
Alongside his role as CEO of Sologenic, Bob is co-founder of Coreum, a new generation, layer 1 blockchain built to serve as a core infrastructure of future blockchain applications.
He is a serial entrepreneur in the tech and manufacturing industries, having established companies such as Hardex Manufacturing and CoinField.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc..