Public Company Accounting Oversight Board (PCAOB) published a bulletin warning investors not to place too much faith in the so-called “Proof-of-Reserves” reports that some crypto companies submit.
The PCAOB, an industry-funded watchdog under the jurisdiction of the U.S. Securities and Exchange Commission (SEC), said reserve count reports as evidence that a firm is protected from financial losses do not provide “substantial assurance.” In a statement, the board clarified that these reports are not audits and do not meet any particular standard.
According to the PCAOB, such proof of reserves is just a snapshot that says nothing about the obligations of crypto companies, the rights and obligations of holders of digital assets, or whether the assets were borrowed by a crypto firm. The Board also emphasizes that such records do not constitute evidence of the effectiveness of internal controls or corporate governance.
Due to the lack of comprehensive audits common to traditional U.S. digital asset finance firms, these firms typically rely on proof of reserve reports. For example, crypto exchange Kraken’s claim that it has $19 billion in bitcoin (BTC) and ether (ETH), as well as December data from crypto exchange Crypto.com showing that clients’ assets are fully backed one-for-one, are based on such reports. .
After the collapse of the FTX crypto exchange, many centralized exchanges began to publish confirmations of the presence of reserves. One of the first platforms to show the presence of reserves was Binance. Following her, large crypto exchanges, including OKX, Bybit, Bitget and others, also confirmed the availability of reserves. However, the crypto community believes that the confirmation of Binance assets does not convey the full picture of what is happening.
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