It’s 2:45 a.m. I haven’t stayed up this late since the days EY sent me to count worthless dollar store trinkets in the sketchiest LA neighborhoods from 10 pm to 4 am.
Speaking of EY, I usually don’t speak highly of the Big4 firm, but I couldn’t help but applaud them in this issue for their blockchain initiatives.
Also, what kind of weird reality do we live in where the SEC will go after an accounting firm for “shady accounting” one day, then a crypto-shilling mega influencer the next, only to hit them with the same $1 million fine?
I had fun writing this one, so I hope you enjoy reading it. If you don’t, try circling back at 2:45 a.m.
“Calc”-you-later,
Trevor
EY: “The Best on Earth at Ethereum”?
Missing Messari’s Mainnet summit last week left me with more FOMO than an accountant during busy season. Even if you were there, you probably missed one of the most intriguing conversations.
In an off-stage interview with Decrypt, Paul Brody, EY’s global blockchain lead, proclaimed that the firm wants to be “the best on earth at Ethereum.” Hold up—is this the same EY where the escalated ‘Level 2’ tech support solution was to “turn off your computer, then turn it back on again?” Brody said that “they’re all in on public blockchains in crypto” and talked about the tools they’re building on the blockchain. I’ll be honest—when I read this, I couldn’t help but scoff.
I decided to dig a little deeper. EY Blockchain has been around since 2015, and they managed to build an impressive suite of tools, including a blockchain audit platform, smart contract testing tool, and tokenization system. I created a free personal account on their blockchain platform, fully expecting it to be a glorified spreadsheet. Imagine my surprise when I was met with a welcome screen notifying me that the fine folks at EY had “set up an Ethereum and Polygon wallet on the Ropsten and Mumbai Testnets” (that’s nerd speak for a blockchain sandbox account).
But wait, there’s more: EY’s blockchain R&D department partnered up with Ethereum scaling company Polygon to launch a ZK and optimistic rollup hybrid called Nightfall in May of this year. If that sounds like a strange mashup of a Transformer and your kid’s favorite fruit snack, don’t worry, because this is some next-level web3 tech we’re talking about. Here’s a quick overview:
Blockchains contain limited space for processing data. Rollups batch together transactions, remove them from the main chain for faster and cheaper processing, then rolls them back up on the main chain. There are two main types of rollups:
- Optimistic: assumes all transactions are valid and that everyone is honest. No computation is performed unless there’s evidence of fraud.
- Zero-knowledge (ZK): All transactions are validated off-chain then a proof of validation is submitted to the main chain.
This is the coolest thing EY has done since paying for all their summer interns to go to Disney (even if it was a ploy to get people to submit to indentured servitude willfully). My last question was, “how many people at EY are working on this?”
A quick LinkedIn search shows over 4,000 people across multiple continents. 🤯 With the recent news regarding its plans to split its consulting and auditing businesses, I’m left wondering:
Is EY quietly building a blockchain consulting empire?
SEC Forces Kim K. to Liquidate Golden Toilet
Checking another box on her “famous for all the wrong reasons” Bingo card, Kim Kardashian is being fined by the SEC to the tune of $1.3m for not disclosing (sufficient) details of her paid ad for EthereumMax in June of last year. Apparently putting “#ad” in the caption of an Instagram post is good enough for advertising those weird ultraviolet light tooth whitener things but doesn’t quite cut it for cryptocurrencies or tokens. The SEC says those fall under the category of “securities” and are therefore subject to stricter advertising disclosure standards, including how much the influencer was paid for the promotion – which is how they got Kim. The devil’s in the details, y’all.
This isn’t the first time the regulator has gone after celebs for touting crypto. Four years ago, boxer Floyd Mayweather and modern-day Nostradamus DJ Khaled got a wrist slap for failing to disclose their (paid) enthusiasm for ICOs, and the list doesn’t stop with them. But the point here is bigger than any one celebrity’s brush with the Wall Street heavy.
First, in our last entry, we reported on the enforcement emphasis of the White House’s newly released guidance on digital assets. To wit: the SEC and CFTC were encouraged to “aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space.” So apparently they’re taking that to heart. Kardashian’s mind-boggling reach as an influencer (estimates say her ad for EMAX was seen by about 1 in 5 Americans) is probably at least partially responsible for this scrutiny.
Second, by these standards, we’ll probably see more crackdowns on celeb promotions of crypto assets, which may in turn yield fewer celeb endorsements in this space. Which…I can’t help but feel is a win for the industry overall since most influencers talking crypto is just noise – something we need less, not more of in this industry.
In the meantime, it’s probably a good practice to not buy anything Kim K is selling. Although maybe the guys from Pawn Stars will buy her golden toilet so she can pay off the feds. The jokes really write themselves.
Is Tether’s Balance Sheet BS?
In August, Tether announced its partnership with accounting firm BDO Italia to move beyond quarterly attestation reports by issuing monthly assurance opinions and daily updates on issued tokens and reserves. Tether announced that it is “committed to not only lead in innovative technology, but also in transparency and accountability to its customers who use stablecoins to make tens of billions of dollars in trades every day. This new relationship aligns with Tether’s dedication to transparency and is the next step in the company’s path toward a complete audit.”
A US judge in New York isn’t buying it. She says that before we can dub the stablecoin issuer “Transparent Tether,” they need to produce financial records relating to the backing of USDT.
The situation only looks worse when you consider that their former auditor, Friedman LLP, just got slapped with a $1M fine by the SEC for sloppy accounting. Specifically, Friedman failed to “respond to fraud risks” and “exercise due professional care and professional skepticism.” An undisclosed source believes to have stumbled across their audit documentation:
Spotlight
In case you missed it, we recently dropped the first edition of Multisig Media Mega Map (or the M4 Report), where we did a deep dive into enterprise and retail SaaS offerings for digital asset accounting and finance. Whether you work in web3 and are looking out for new tools or just want to stay ahead of the trend, this market map has you covered! [Image and Download button]
The Water Cooler 🚰
Things worth talking about at the office water cooler…if you 1) talk to people, 2) still work in an office, and 3) have a water cooler.
Other Significant Findings
- Last week, Circle held Converge22 in San Francisco, their first annual crypto platform and ecosystem conference (so many conferences, so little time!). When announcing the conference back in May, CEO Jeremy Allaire Tweeted: “We are at a critical moment in the transition of crypto from early adopter to mainstream applications, touching every facet of society and the economy — builders, startups, TradFi players, policymakers, media and more will converge.” Sounds pretty close to something else we know. We’re sorry to miss seeing Vitalik in person, but maybe we’ll run into some of you there next year!
- SWIFT is partnering with crypto data provider Chainlink on a cross-chain interoperability protocol to “help bridge the gap between traditional and digital assets for TradFi institutions.”
- While the FASB has started moving on accounting guidance for digital assets, the International Accounting Standards Board (IASB) is sitting this one out, claiming digital assets aren’t pervasive enough. In other words, they’re waiting to see what the U.S. does so they can copy us.
Funding
- The crypto accounting platforms continue to pop up. Last week, Tactic announced an $11 million raise led by FTX ventures.
- Golden raised $40 million in a Series B round led by a16z to help its efforts to build a platform that centralizes data using technologies and mechanics from web3.
- NYDIG, one of the biggest Bitcoin bulls, raised $720 million for its institutional Bitcoin fund in spite of Bitcoin’s bearish price movement.
Extraordinary Items
Credit Suisse > Debit Suisse
Too soon?
