Backing out

Gm, everyone. This holiday season, we hope your wallets are cold and your cocoa is hot. This is the last newsletter you’ll get from us ’til the new year—we’ll be spending the holidays sharing unsolicited ideas about an SBF biopic with any Hollywood director whose email address is public. ’Tis the season!

Here’s what’s on tap today: Mazars backs away from crypto, media companies fight for transparency, and Japan’s tax code becomes a lot more crypto friendly.

—Angelina & Vincent

Mazars Sparks Binance FUD

Mazars announced on Friday that it suspended its auditing services for crypto companies—including Binance. And because this is crypto, the news sent FUD about the solvency situation of the world’s biggest crypto exchanges through the roof.

Some context: After FTX collapsed, other crypto exchanges rushed to prove their solvency via third-party audits. KuCoin, Crypto.com, and Binance’s auditor of choice was Mazars, a French accounting firm which also audits the books for Goldman Sachs.

So why is Mazars ditching crypto? Mazars feared that if one of its crypto clients were to go bust, its public image would take a hit by lending feigned credibility. The public still believes proof-of-reserves (PoR) are the auditor’s personal assurance that everything’s fine (they’re not).

• PoR differs from a full financial audit in that the exchange can make up its own auditing rules and the auditor doesn’t give its opinions on the numbers in the final report.

• PoR also isn't the holy grail of transparency. They lack crucial information such as the exchange’s liabilities (which aren’t on-chain and subsequently aren’t transparent to the public).

Crypto Twitter didn’t take the news too well. Worries that Mazars wanted to distance itself from Binance’s recently published PoR report sparked FUD about the exchange’s financial health. But CZ reassured customers that Binance is “financially OK.”

Big picture: Independent auditors are hesitant to work with crypto companies. The auditing firms that gave FTX their stamp of approval got burned badly when SBF’s empire collapsed—and no one wants to follow in their footsteps.

And as long as the law doesn’t force crypto exchanges to be fully transparent and disclose their liabilities, we as customers will never get the full picture. One solution? Better regulation.

—Angelina

FTX Who’s Who

Nobody likes secrets, especially not in bankruptcy hearings. That’s why US Judge John Dorsey ruled Friday that media businesses like the New York Times and Bloomberg can petition FTX to publish the full list of its million creditors (aka its customers).

The point of publishing the full list wouldn’t be to dox people, but rather:

• This information is typically public in a bankruptcy hearing. So far, the judge has kept creditor names redacted to protect people who he wants to see participate in the bankruptcy proceeding.

• The contact information for creditors would likely remain private. Only their names would be released.

The court thinks: The move would show the public that the bankruptcy proceeding is fair and that creditors were getting their assets back without preferential treatment.

FTX thinks: Releasing the creditor list would expose customers to scams and allow competitors to poach them, in turn lowering the value of FTX.

Zoom out: The exchange would like to sell some of its subsidiaries (LedgerX, Embed, FTX Europe, FTX Japan) and keeping the creditor list private may help it do that. Celsius and Voyager have struggled to sell their assets during their bankruptcy hearings—so the idea that a list of customers kept private will help FTX sell theirs is a bit of a stretch.

—Vincent

Japan Opens Up for Crypto Firms

Japan is about to become a lot more crypto friendly. Here’s why:

• Japan has strict corporate crypto tax measures which require domestic crypto businesses to pay a 30% tax on the paper gains of their token holdings—regardless of whether they realized a profit from selling their crypto.

• Last week, Japan’s ruling party decided to ditch the 30% tax in 2023.

Big picture: Japan’s heavy taxation has been a headache for crypto companies, which is why many of them set up shop elsewhere. Softer crypto tax rules are a major step in stimulating Japan’s web3 economy—and the fact that some regulators still seem open towards crypto despite recent events is a pretty good sign.

—Angelina

In other news:

• Binance.US agreed to buy Voyager for $1 billion.

• Former President Donald Trump unveiled NFT digital trading cards for $99, and they sold out within a day.

• Grayscale is exploring returning up to 20% of the investor capital in GBTC shares as hedge funds push them to allow redemptions.

• The Senate Banking Committee Chair suggested that the SEC and CFTC should “maybe” ban cryptocurrencies.

• Sam Bankman-Fried may embrace extradition to the US to get out of jail in the Bahamas.

And that’s what you need on your radar today in crypto. Thanks for everything this year, and we’ll see you in 2023!