A recent Bloomberg report has shed light on some concerning practices within the cryptocurrency industry, revealing that numerous influential crypto firms, which handle assets worth tens of billions of dollars daily, do not work with external auditors and independent boards to ensure accountability and openness. This lack of regulation persists even after the collapse of the FTX exchange and its sister company Alameda Research, both of which filed for bankruptcy due to poor management and misappropriation of funds.
According to the report, Bloomberg surveyed 60 top crypto firms, including token issuers, exchanges, analytics businesses, and mining companies. Interestingly, just half of the firms utilized a third-party auditor to evaluate their financial health. Meanwhile, 63% already had an independent board in place. These findings raise questions about the general transparency and professionalism surrounding control and governance in the cryptocurrency space.
The high-profile crash of the FTX exchange and Alameda Research last year is a prime example highlighting the need for audits and proper independent oversight. Investigations into the incidents exposed various vulnerabilities, including a lack of board meetings, inadequate management, and an absence of audits. Despite these clear lessons, it appears that many cryptocurrency firms are yet to adopt more stringent practices.
Some experts argue that the crypto industry is characterized by a lack of accountability. In an interview, Ruth Foxe Blader, a partner at digital financial services venture capital firm Anthemis, described the sector as “an industry of anonymity that’s masquerading as transparency.” Additionally, David Parman, managing partner at crypto VC firm CoinFund, stressed the importance of implementing proper standards. He noted that while it is typical for startups to only have founders on the board during seed investment, there should be at least one outside director by the Series A round.
Furthermore, it’s important to mention that some well-established crypto firms, such as Coinbase and Ripple, pointed to Deloitte as their external auditor. Others, like Chainalysis, Anchorage, and Ledge, cited EY. Nonetheless, several prominent companies, including Magic Eden, Tether, and Huobi, did not have independent boards in place, comprised solely of advisory members or company executives.
These statistics highlight the need for a more consistent approach to auditing and the establishment of independent boards across the cryptocurrency sector. Failure to implement proper governance and accountability could lead to further issues, jeopardizing not only individual firms but also the industry as a whole. Only by addressing these challenges and promoting transparency can the crypto market sustain its growth and avert any potential collapses like those of FTX and Alameda Research.
Source: Cryptonews
