If the failure of 3AC, Celsius, BlockFi and LUNA did not underscore the critical need for financial disclosure, proof of assurance and proof of reserves in the crypto space, then the failure of FTX should be a baseball bat across the face of investors in crypto. Everything above the base layer that raises capital or provides custody will die without it.
In the wake of the American stock market crash of 1929, FDR called upon Joseph P. Kennedy to reform the securities markets. Kennedy was a big beneficiary of the rug pulls and dark securities markets up to that time and knew where the bodies were buried, who buried them and how.
The adoption of the Securities Acts and the formation of the Securities and Exchange Commission was a response by the Roosevelt Administration to nefarious and manipulative activities that helped contribute to the crash. The Securities Acts would ultimately help restore confidence in capital formation and play a critical role in the adoption of similar frameworks by other global jurisdictions. Are you listening yet?
Prior to the adoption of the Securities Acts, the general public gained information about issuers of securities (tokens) from brokers (exchanges) and tipsters (influencers). Financial statement disclosure was not a common public artifact. Orders for securities transactions were also executed by largely unregulated intermediaries, often at a disadvantage of buyers and sellers. Sound familiar?
Since 1934 every traditional exchange has been providing financial and operational disclosure to counterparties. The combination of exchange and custody services under one roof represents a bigger danger to investment societies than exchange order matching alone.
The FTX failure may be the excuse that moves regulators to do things that will likely hurt innovation. Gary Gensler took the opportunity to echo his consistent statements about time tested public policy. History may show that the very opponents to Gary Gensler have been acting in a manner that could prove him right.
Web3 Financial Disclosure Infrastructure
Auditchain Labs AG, based in Zug, Switzerland is leading the development of the first and only Web3 financial disclosure and proof of assurance infrastructure that solves the opaque nature of centralized exchanges. The Auditchain Protocol incentivizes and enables accountants, CFOs, CFAs and other professionals to create, validate and own Process Control NFTs that automate accounting, financial reporting, audit and analysis processes using a machine-readable global standard syntax on the Auditchain Protocol. It is designed to modernize assurance and financial disclosure for what’s left of society’s 21st century open ledger-based investor.
Royalties are paid in AUDT which is the staking, settlement, and governance token on the Auditchain Protocol. Each time the Process Control NFTs are used to create and audit financial statements, the creators and the validators of the Process Control NFTs get paid royalties.
Affiliated Relationships and Related Party Transactions
FTX created the FTT token which became the subject of the famous tweet by CZ that started its precipitous decline. Binance was an investor in FTX and held a significant amount of FTT. Alameda Research was the biggest market maker in the FTT token. Alameda and FTX used the FTT token for collateralization and engaged in transactions with third parties. The decline in the value of FTT clearly had a material negative effect on the ability for FTX to meet its obligations to its customers.
This information should have been disclosed to account holders who trusted FTX to custody their assets. Exchange and custody DO NOT mix well in ANY financial services stack.
Finally – A Protocol for Accountants
Blockchain and distributed ledgers may represent the greatest contribution to the accounting and audit profession since Summa de arithmetica, Luca Pacioli’s documentation of double entry accounting in 1494.
The yearlong crypto crash of 2022 has created an incredible opportunity for accountants and professionals to move from hourly fees and centralized manual labor to earning royalties on the Auditchain Protocol that may one day save us all from financial Armageddon.
2022 will go down in history as the time that crypto suffered its 2008 moment. It will also mark a new epoch in the annals of accounting and professional services.
The Auditchain Protocol was conceived by Jason Meyers in response to the conclusion of a regulatory conflict over an accounting in 2014 that ended his 25 year banking career. Jason took many companies public including Alexion Pharmaceuticals which was acquired by Astrazeneca for USD$41 Billion.
Jason has a strong belief that the centralized and interconnected activities that occur in crypto could kill innovation. He strongly believes the crypto space needs to find a way to compromise or be subjected to politically imposed and misguided regulations that may one day make us all wonder what a good idea it could have been.