After a year of crypto crack-ups, politicians and industry leaders are asking how to prevent another FTX or Celsius from happening in the first place. Audits would be a good place to start. Instead of taking it on faith that companies are not making ill-advised bets with their money—or stealing it outright—customers and investors should demand crypto firms attest they are solvent and prove their reserves really exist.
But how? In recent weeks both Binance and Crypto.com put out "audits" conducted by a regional branch of a global accounting outfit called Mazars. The documents attest that the companies hold large amounts of crypto, but don't provide a full picture of assets and liabilities. One accounting expert has panned the Mazars documents as "more worthless" than audits produced by Tether, a shadowy offshore crypto firm that hired a Cayman Islands law firm to vouch for its books. Meanwhile, the Financial Times notes that the new "audit" published this month by the CEO of Binance uses many of the same methodologies as an "audit" he produced in 2015 for a company facing headwinds called OKCoin—suggesting the documents may amount to more of a PR strategy than a serious accounting exercise.
All this raises the question of why, if they are looking to build trust, Binance and the others didn't hire one of the Big Four accounting firms to conduct their audits. Is it because they didn't want the level of scrutiny those firms would provide? Or is it because the firms can't or won't conduct a proper crypto audit?
I put the question to Twitter and was surprised at the number of responses received. The CEO of Coinbase replied that the company uses Deloitte while Tezos's cofounder told me her project uses PwC—with both adding that these firms are risk averse and picky when it comes to taking on clients. Meanwhile, a senior executive at Uniswap Labs informed me the DeFi giant works with Deloitte but added that she is frustrated at how difficult it is for early-stage crypto companies to find accounting firms. The blockchain head at EY directed me to a tweet saying his team had examined the Binance report and that the numbers in it—those made available—did add up. (KPMG completes the Big Four.)
This suggests that, unlike the earlier days of crypto, the major players in the accounting profession are capable of providing their services to blockchain companies, but that they could do more to make these services widely available. It would be even better if they could come up with a common methodology of what amounts to a sufficient audit and push the profession's oversight body, FASB, which only recently moved to recognize crypto as a distinct asset, to help in the process.
The bottom line is that, if the crypto industry is to rebuild trust after a year of scandals, it needs to start embracing the accounting processes used by the rest of the business world.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
