Author: Simi Awe

Download the Chamber’s Proof of Reserves Guide

Introduction

The Digital Chamber is proud to announce the release of the Proof of Reserves Guide 2.0, an evolution of the original guide released in 2021. This updated guide arrives at a pivotal moment as proof of reserves becomes mainstream and we work to standardize best practices in the digital assets space. Despite no single jurisdiction having a comprehensive framework for licensing, market structure, tax, or accounting standards, one thing is clear: digital assets are here to stay. Current consumer protection measures and transparency reporting are insufficient to prevent disasters like the FTX.com-Alameda collapse. As demand for digital assets grows, so does the need for robust transparency measures, making the Proof of Reserves Guide 2.0 essential for industry stakeholders aiming to safeguard the future of digital finance.

Background

While no single jurisdiction has a licensing, market structure, tax or accounting standards framework that answers all the open questions, what has become clear in recent years is that: digital assets are here to stay, and current consumer protection measures and transparency reporting are insufficient to prevent the next FTX.com-Alameda disaster.

Demand for digital assets has grown by almost all measures, and perhaps more compelling is the undeniable benefits and efficiencies that real-world asset tokenization can bring to traditional asset classes. In almost every digital asset or tokenization use case, there is an important new challenge created: how to close the transparency gaps created by centralized marketplaces, tokenization of real-world assets (including fiat currencies), and traditional notes that track the price of digital commodities (such as Exchange Traded Products or Funds).

Proof of Reserves, as a general concept, emerged and offered an important contribution to solving, at least partially, these widespread transparency challenges. The service provider failures of mid-late 2022 provided a painful emphasis point on the need for Proof of Platform Reserves; millions of consumers were harmed to the tune of Billions of Dollars.

Proof of Reserves has gained more real-world application since the publication of our first Guide; however, it remains true that Proof of Reserves is not itself a panacea, and that additional legislation, rule-making, generally accepted practices, and uniformity in Proof of Reserves is needed now and in coming years. Therefore, the Guide restates the original framework and taxonomy for understanding the types of Proof of Reserves, which has held up since the last publication of the Guide. The guide continues its original focus on Proof of Platform Reserves – the type of PoR most relevant to, and historically adopted by, digital asset service providers, exchanges or custodians.

Using the Guide

The 2024 revision to the Practitioner’s Guide to Proof of Reserves (The Guide) is organized into chapters. A complete understanding of Proof of Reserves can be obtained by a study of the complete Guide. However, each chapter focuses on topics that may be of specific interest for certain readers and enable them in their specific area of practice or policymaking. Use the table below to focus in on the chapters most relevant to your practice area and needs.

Conclusion

In February 2021, the market capitalization of digital assets broke the $1 trillion mark. This milestone signaled the arrival of new market entrants, such as institutions looking to diversify their portfolios and fortify their corporate treasuries, and large companies, such as PayPal, Visa, and others, who sought to offer digital assets to their customers and clients.

Retail investors have also looked to digital asset markets to capitalize on new, innovative financial products and business models. This renewed focus on digital asset markets has not been limited to investors only; policy makers and regulators have also been paying close attention, keeping a watchful eye on market participants to guard against investor harm.

Innovation in digital assets offers incredible promise. Personal finance can become more available, more transparent, and unbridled from the limitations of institution-only ledgers. Bitcoin as a digital commodity offers and incredible experiment for the world to experience uncensorable, non-political, commodity money controlled by fair and open code alone. The power to tokenize real-world assets on distributed ledgers will inevitably reshape marketplaces, trading, compliance and the ownership experience across asset classes.

Unfortunately, innovation in digital assets has outpaced global policymakers. The failure of policymakers and regulators to keep up with laws and regulations that are reasonable and purpose fit, as well as the failure of some service providers and other businesses to adhere to long-proven best practices, has resulted in repeated harm to consumers.

Blockchain networks and digital assets are not going away. They will continue to become more sophisticated, more widely used, and even more commonplace back-end technologies behind other consumer-facing services. Reasonable regulation and smart policy is possible, and recent examples detailed herein indicate a positive trend. Proof of Reserves as a general concept must be a component of regulatory frameworks because it is the best available tool to address the main risk affecting consumers; that tokenized assets aren’t properly backed, that service providers aren’t properly reserving customer assets in custody, and that exchange traded products are not built on funds with actual like-kind assets under the  issuer’s control.

Trust but Verify

For More Information: 

Please contact: policy@digitalchamber.org.

The Digital Chamber is pleased to see H. Res 109, a Joint Resolution to Disapprove of the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) 121 has successfully passed the House with a vote of 228-182 and is now advancing to the Senate. While we are discouraged by President Biden’s Statement of Administration Policy indicating an inevitable veto of the bipartisan effort to nullify SAB 121, the strong support for the resolution demonstrates a call for reconsideration and underscores that independent agencies should not be rewarded by bypassing transparent measures required by the Administrative Procedure Act.

The Digital Chamber’s Founder and CEO, Perianne Boring said following the passage “We are proud to see H.Res 109 passage with bipartisan support. This is not a crypto issue, but an issue about consumer protection and process. SAB 121 also sets a dangerous precedent of providing unchecked power to independent regulators. The Digital Chamber remains committed to facilitating a regulatory environment that supports innovation while protecting consumers and passage of the Resolution is a step in the right direction.”

We thank Congressmen Mike Flood (R-NE) and Wiley Nickel (D-NC) for their leadership in introducing this resolution to safeguard consumer protections and ensure the SEC adheres to its rulemaking authority. We remain committed to supporting this nullification effort through the U.S. Senate.

For media inquiries, please contact press@digitalchamber.org.

What’s in a name? A lot, as we’ve learned over the past decade.

We will celebrate 10 years since our founding later this year, and we thought it was time for a refresh of our brand, our outlook, and even our name. It’s time for everything we do to reflect on the moment we are in now and the incredible opportunities we see ahead.  

So, what’s changing?  

As of today, The Chamber of Digital Commerce officially becomes The Digital Chamber, or as we like to say, TDC. Why? Because we are The Digital Chamber – we represent a cross-section of companies, investors, and builders who are creating a thriving ecosystem of digital assets, services, and products in every category imaginable. And we want our name to reflect the breadth and diversity of this industry as it grows.  

Soon, you’ll see our entire new website, reflecting our new look and new brand. Keep an eye out for this in the coming weeks! 

As always, we see our role as the leading convener of experts, driver of innovation, and defender of digital assets across every segment of this thriving industry. 

We are The Digital Chamber (TDC). The true believers, the champions, and the advocates for digital assets. With your help, we look forward to changing the world together for many years to come.