Recently, BitWise presented a report to the SEC alerting the market that a surprising 95% of total bitcoin trading volume is faked. It was noted that only 10 exchanges could be verified to have “real” volume – including our exchange, itBit.
Not long after this news, Coinfirm published a report calling into question the oversight procedures of various global crypto exchanges – specifically rules around Know your Customer (KYC) and anti-money laundering (AML). While it stated that improvements have been made, it notes that the many exchanges still do not have oversight and standards, which puts customers’ assets at risk. This week’s report from the New York Times underscores how a lack of oversight and regulation has many institutional investors unsure of how to engage with crypto assets.
These reports paint a disheartening picture of where the crypto industry is today. Fake volumes on exchanges and a lack of basic customer checks are endangering the vision of blockchain and allowing groups to profit off the unregulated nature of the industry. This dynamic also has limited institutional participation in the market thus far. However, these reports also signal how the industry must evolve. At Paxos, we have always believed in following that straight and narrow path to the future.
We believe that by working closely with regulators across our products and by setting up (and enforcing) clear rules for customer engagement, we are building an ecosystem of trust where both retail and institutional participants benefit. This will only increase the long-term impact of blockchain technology in the global financial system.
Here are some key facts that demonstrate the Paxos view and approach. The actions we’ve taken to instill trust in our products (in particular, the itBit fiat-to-crypto exchange and the PAX stablecoin) far outpace those taken by most other industry participants to date:
- Paxos’ Trust Company Status: We’re a New York State chartered trust company regulated by the New York State Department of Financial Services (NYDFS). As a trust company, Paxos is subject to a higher level of regulatory oversight, ensuring all our customers’ funds have the highest form of protection. We’re safer than exchanges or other service providers that only have a Money Services Business (MSB) designation or a BitLicense. We have to meet specific NYDFS capital, consumer protection, compliance, and anti-money laundering requirements. Our customers receive the highest level of security and protection for the crypto and fiat assets they deposit with us. We chose to have this trust charter because New York is the global financial hub and the NYDFS is the toughest oversight organization. By having this designation, we can offer customers the best security and most trust.
- Monthly Audits and Published Attestations for PAX: Paxos works with Withum, a top-ranked audit firm, to independently verify that the entire supply of PAX is consistent with USD reserves in Paxos accounts held at U.S. banks. That’s how we maintain PAX’s status as a stablecoin backed 1:1 to USD. But doing these attestations is only impactful if we’re transparent and share the results with the public. You can review all attestation results since PAX launched here.
- Ongoing Audits for the Company: Paxos works with top firms Deloitte and Grant Thornton to audit our internal operations and financials on an annual basis. This offers a level of assurance that no matter what products or services we offer ourselves – or power for partners – traditional financial institutions can trust us and work directly with us.
- Security on all Fronts for itBit: itBit employs multiple layers of security to ensure that our exchange is the safest in the industry. We have DDoS attack protection, SSL protocol, two-factor authentication and full encryption. We also support crypto asset cold storage for 100% of assets held under our Custody. Your assets are safe with us.
- FDIC Insurance and Full Crypto Asset Protection for PAX and itBit: US dollars are held in FDIC-insured banks or Treasury bills, and all digital assets are fully protected and backed by mandatory capital reserves. This means that in an unlikely worst-case scenario, your assets are safe. That’s a rarity in crypto.
- Constant Risk Assessment Monitoring for PAX and itBit: Paxos uses surveillance and monitoring technologies to monitor blockchain activity, screen customers, onboard verified customers and monitor transactions. Our efforts to prevent insider trading, wash trading, spoofing and other manipulative, fraudulent or suspicious activity means your assets are protected. All itBit exchange price quotes are reflective of market pricing.
- Adherence to global AML/KYC compliance for PAX and itBit: We have high standards of AML/KYC compliance and require proof of a bank account and source of funds. We stick to these globally accepted standards because they prevent nefarious activity on our platform.
Paxos is on a mission to rebuild the infrastructure of today’s financial system. We’re creating a framework that will allow anybody, anywhere around the world to move any asset in a fast and trustworthy way. We believe that by building this tech-enabled infrastructure, we can allow more people access to the financial system and empower more people.
That being said, for Paxos to achieve this mission, we must build public trust in blockchain technology. Distributed ledgers, decentralized trust, and smart contracts have introduced exceptional innovation and can benefit our global financial system. We’re seeing important institutional validation from industry giants (JP Morgan, IBM, Facebook, Square, etc.) that indicates the long-term potential for these technologies. But to achieve greater adoption and widespread impact, all industry players must work harder to establish trust. We plan to continue leading the industry in truth and transparency.