Binance outflows hit $6B as Mazars halts ‘proof of reserves’ work

> left with stock market and crypto

I used to advocate for loosening accredited investor standards, and was involved in a 2014 effort that did so. Then I see this. Where public equities are put on the same pedestal as crypto (and implicitly, private equity), while the universe of commodities, fixed income, credit, real estate and their myriads of derivatives are ignored. Like, I dabble in angel investments. But they’re as risky as crypto, and require thousands of dollars of legal diligence per investment, even to do irresponsibly.

We have a gambling problem in our markets that’s been sold to everyday Americans under the guise of democratising finance. We don’t need to block people from being irresponsible. But there should be a low cap, in line with a responsible fraction of one’s wealth that could be burned in a casino, and strict exemptions guarded with exams, not a wealth test. Particularly for the socially useless forms, such as slot machines and crypto futures.

> ... with Coinbase it is the investors funds at risk, not the customers funds

Oh boy are you in for a surprise:

"In its quarterly report, Coinbase added a risk disclosure: if the company were to file for bankruptcy, the court might treat customer assets that the exchange is custodian for -- their Bitcoin, Dogecoin or whatever -- as Coinbase’s assets. And they’d be at the back of the line for repayment, forcing normal people, unaccustomed to the ins and outs of federal bankruptcy court, to claw back their money along with everybody else owed money by the exchange."

From Bloomberg: https://www.bloomberg.com/news/articles/2022-05-11/coinbase-...

Auditing a firm is not an act of charity. It’s a contract. Binance has either asked zero accountants to audit their billions in reserves, or zero have taken the job. Mazars international probably got scared and leaned on the partner. The auditing of a firm this size is usually not a very big deal and nowhere near the capacity of a partner with all the roles below.

Exactly. However the serious participants in the cryptocurrency space have been begging for regulation.

The complaint however is that the regulations that have been proposed are trying to pidgeonhole the different parts of digital assets and decentralised finance (not defi but decentralised financial services as a whole) into existing categories that they don't cleanly fit in.

Cryptocurrency for example isn't a commodity (representation of a resource) or a security(representation of ownership/control in an organisation/system). It can never fit cleanly under one definition or the other. Some tokens would fit cleanly under the definition of a security, some under the definition of a commodity, and some cleanly under neither.

Likewise, node, relay, and validator operators for networks don't really fit cleanly under any given existing set of regulatory guidelines. Regulations for Money Service Businesses for example are overly restrictive and essentially outlaw any existing cryptocurrency operator from even attempting to operate in the US. It's not that the stated goals are impossible to comply with but rather that the specifics of the regulations are. Conversely, some of the much laxer proposed regulations wouldn't adequately cover operators and would leave the door open to abuses.

AML and KYC regulations are particularly problematic. They mean well and the spirit of the regulations should be adhered to but they have not been written in a way that is compatible with this tech. Networks with privacy preserving transactions can comply with AML & KYC. Projects on those networks can as well. It won't however be in a way compliant with the direct reporting of user identities. Even if you wanted to comply with KYC & AML, you physically couldn't. Instead you can build infrastructure to comply KYC and AML via DIDs, ZK-proofs, and conditional release of private information (via functional encryption and a number of other techniques).

There's a multitude of ways to handle the regulatory complexity without legally crippling privacy preserving & decentralised tech. It just requires that regulators actually work with the communities that have been trying to do things proper and kosher. Instead regulators have essentially ignored the industry's requests & proposals in whole, claimed to have heard nothing, and plowed forward with pushing regulations that would cripple the legitimately useful technology in the space.

What does it even mean to audit a company that doesn’t follow or reconcile to GAAP (or equivalent)? Are there examples in any other industries?