The Institutional Crypto industry is around 4 years old. It has grown faster than almost any other human made technology in history, causing tremendous growing pains, as Crypto firms navigate Audit, Accounting, Regulatory & Compliance frameworks built for TradFi.
As Crypto firms have looked to validate their holdings and financial positions they have reached for Proof of Reserves. This will not provide a full picture of their financial situation. It will fail as a means of reassuring their customer base. They must embrace PoLAR.
Crypto “Liabilities, Assets, and Reserves” refer to the financial position of a Crypto exchange, wallet, or other platform that holds or manages Crypto on behalf of its users.
- Liabilities are obligations or debts that the business owes to others, such as money or assets that have been deposited by users but have not yet been withdrawn.
- Assets are, tangible or intangible, resources owned by a company that have been bought or created to increase a company’s value, benefit business operations and/or reduce expenses.
- Reserves are liquid assets set aside & available to meet any unexpected surge in demand. For example, a Crypto exchange may hold reserves of various cryptocurrencies to cover the value of user deposits and ensure that it has the ability to pay out withdrawals as requested.
Crypto businesses can validate their PoLAR in many ways, but the core is to have reliable, secure and robust transaction management systems that can produce accurate reporting for key stakeholders, including Customers.
Having a robust system in place can help a Crypto business to:
- Transparently demonstrate to the market your secure, full financial position & retain trust.
- Speed up your external audit process and close your financial books with confidence.
- Accurately assess and manage risks, such as the risk of theft, liquidity or operational risk, which can impact the financial position of the business.
- Make informed business decisions based on accurate & up-to-date financial data.
- Securely engage with counterparties for further business.
- Meet regulatory requirements, if applicable, by providing accurate and transparent financial reporting to third parties when requested.
2023 will be the year of Crypto Infrastructure Investment for Crypto Businesses who want to survive, demonstrate their PoLAR and then thrive. Robust systems must be implemented to allow trusted third parties (Auditors, Regulators, Tax Authorities, Customers) to show you your way out of the Crypto Ice Age, or remain frozen in time! #PoLAR
To find out more about #PoLAR contact firstname.lastname@example.org