Following the recent turbulence within the crypto industry in the wake of FTX collapse, every other crypto firm seems to take the lesson. Otherwise what could have bothered these firms, including major crypto exchanges, to come up with the ‘proof of reserves’ without asking.
Recently Nexo, a prominent crypto banking firm, reported its proof of reserves. The report, however, missed the asset breakdown and wallet addresses over the platform.
This remains the pattern with by and large every other firm or exchange coming up with the proof of their reserves. These firms were also unable to showcase the details of assets and also did not reveal if their assets are more or their liabilities.
In the audit, it came to know that Nexo has about 3.4 billion USD worth of funds in customer liabilities. More importantly, the firm has 100% collateralized assets with sufficient backing.
Nexo emphasized that the concept of proof of reserves is crucial food crypto although asked that there should be more transparency regarding this. The firm cited the importance of an external accounting firm probing the company.
The company developed an asset to liabilities ratio evaluating tool in 2021, in collaboration with PCAOB.
Following the companies revealing their assets reserves, the companies are demanded to include external or third party auditors. Such probing of available assets and liabilities over the platform would be more effective.
Nexo also highlighted the importance of independent auditing of the firms. Although the firm should also showcase the liabilities within the company while noting about assets. The partners and investors then would easily identify the risks involved and ensure the avoidance of potentially massive loss.
The corporation meanwhile urged businesses to steer clear of uncollateralized loans, especially during times of market unrest. The tweets highlighted how Nexo was able to achieve sustainability, positive profit margins, and scalability through controlling bad debt.
Nexo claimed to have extended a completely collateralized loan to Alameda Research after experiencing $0 losses as a result of FTX’s demise, but its risk management were able to recoup the money by selling the collateral. The discussion also mentioned how the company’s risk management allowed it to have $0 exposure to failing miners, Gemini, Genesis, BlockFi, and Celsius, in addition to FTX. Making sure there were no currency, maturity, or interest rate mismatches was one factor that contributed to the success.
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2022/12/03/nexo-reveals-no-exposure-to-ftx-in-recent-proof-of-reserves/