After the collapse of FTX and revelations about its lax business practices, investors and the crypto community at large want companies to uphold higher standards but the results of a recent Bloomberg survey indicate that most crypto firms are still shrouded in a veil of mystery and following their own rules.
Auditing lapse
Only 31 out of the top 60 companies in crypto have undergone a full financial audit or received reserve attestations from an independent auditor, the Bloomberg survey found.
Many of the companies surveyed, however, said their lack of audits was due to the unwillingness of major audit firms to engage with them.
This is partly because the accounting firms do not have sufficient experience with blockchain accounting and partly due to the crypto industry’s long list of scams and scandals. Big exchanges like Binance and Bitfinex both said that major accounting firms are either unwilling or unequipped to work with them.
The survey included crypto exchanges like Binance and Coinbase Global, token issuers like Tether, mining businesses, and analytical firms like Chainalysis. Out of the 60 firms, 17 declined to participate in the survey, while eight did not respond.
All 60 companies were selected based on whether they met one or more of the following criteria: They are publicly listed, were valued at over $1 billion in private fundraising, or were considered to hold significant influence in the sector as of January 2023.
The survey results also show that 46% of the 24 companies that disclosed their present auditor were audited by one of the ‘Big Four’ accounting firms. The ‘Big Four’ accounting firms include KPMG, PricewaterhouseCoopers (PwC), Ernst & Young (EY), and Deloitte. Coinbase, Circle, and Ripple, for instance, were audited by Deloitte, while Chainalysis, Ledger, and Anchorage Digital received audits from EY.
Lack of an independent board
A startup’s board is typically made up of only the founders. But as the firm grows, it should bring in at least one independent director — that’s the general practice in traditional companies, including in the technology sector.
In fact, tech firms require board approval for expenses above a certain threshold during the later stages of growth, making the firms more accountable for how and where they spend their money.
The Bloomberg survey found that 38 of the crypto companies have a board with at least one non-executive member. But 10 companies didn’t, and 12 firms either did not respond to that question or the information was not available in public filings.
Tether, Huobi, and Magic Eden are among those with only advisory board members or where the board is entirely staffed by company executives. Binance is working to have a formal board to oversee its parent group by the end of 2023, according to its chief compliance officer Noah Perlman.
Some of the surveyed firms also said that they had a board but did not disclose information about its members. This includes exchanges Crypto.com and Kraken, non-fungible tokens (NFTs) marketplace OpenSea, and decentralized finance (DeFi) firm Uniswap Labs.
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