A stark reality is dawning on the users and regulators of crypto platforms. While it’s true that users legally own any crypto assets and fiat currency that they may have purchased or deposited on their platform of choice, the fact is that those assets remain in the custody of the platform.
Why is this an issue? Let’s compare it to leaving your dog in the care of a friend. Depending on the friend, you may be able to rest assured that they wouldn’t actively do anything to cause the untimely demise of your fluffy pal. In reality though, the risk of Rover pigging out on your friend’s stash of 70% dark chocolate and taking an early walk to the big puppy park in the sky is unavoidable. Sure, your pup could turn paws up in your own care, but it’s a whole lot more devastating to lose something that you trusted someone else to care for.
Since 2017, the crypto space has experienced far too many cases of companies feeding chocolate to their users’ dogs. Names like Mirror Trading International (MTI), Africrypt, and ICE3X will go down in history as some of the worst examples of what happens when crypto platforms are not held accountable for the way they handle assets in their custody. So with so many alarm bells ringing, how is it possible that the crypto regulatory environment in South Africa remains exactly the same as it was four years ago?
The state of play
As a first step in addressing this problem, in 2017, several South African governing bodies joined forces to form the Intergovernmental Fintech Working Group (IFWG). The IFWG set out to formulate a collective policy position on cryptocurrencies and the financial service providers facilitating the crypto market in South Africa.
These regulations have yet to be published, but the IFGW did issue a press release on 11 June 2021, which outlined the ways in which cryptocurrencies could be regulated in South Africa. Unfortunately, that press release made no mention of enforcing the oversight of the security of customer funds held by crypto platforms.
Crypto Platforms Step Up
Thus, as is all too often the case in South Africa, it falls to the platforms themselves to step up to the plate and provide their users with some form of assurance of the safety of their investments. Leading the charge is Revix, a Cape Town-based investment platform backed by JSE Listed Sabvest. Revix has partnered with Mazars, a leading global audit, tax and accounting partner, to obtain an independent, verified audit in order to prove that customer funds are properly held.
On Friday 1 October, a ‘“proof of reserve” report was released by Mazars, making Revix the first cryptocurrency service provider in South Africa to receive independent verification that it holds all of its customers’ crypto assets.
Wiehann Olivier, Audit Partner and Digital Asset Lead at Mazars South Africa, said: “The proof of reserve report was designed to give users of various digital asset platforms the needed reassurance in the current unregulated industry and therefore will be a fundamental advantage to stakeholders. We are optimistic that the trend of proof of reserve reporting will be followed by other South African and International virtual asset service providers like Revix to add to the credibility of the industry as well as ensuring a safer investment environment.”
Sean Sanders, CEO and Founder of Revix, explains: “This is a big step forward in the South African crypto landscape, as we hope to set the standard for other crypto platforms. The security measures and risk management procedures that crypto platforms implement to protect their customers’ cryptocurrency holdings is the most important area that regulators seem to be missing. This independent report from a top accounting and auditing firm is a step forward in further developing the cryptocurrency industry in South Africa.
“I strongly believe that in the long run, the companies that provide their customers with the necessary transparency, security and peace of mind, will win. We challenge other crypto platforms to follow our lead. Amidst increased regulatory interest in the cryptocurrency industry, we at Revix are setting the bar high so as to prove to our clients and investors that the assets entrusted to us are indeed in good hands, a testament to which is the independent audit by Mazars.
“We’re proud to submit this overview of our process to the global cryptocurrency community. We believe that the crypto industry is capable of providing a level of assurance and accountability that surpasses the traditional financial services industry, and we aim to lead the charge toward optimal transparency.
“For businesses in the crypto and financial sectors, customer trust is a foundational block and showing that reserves are fully backed lays another brick in the path of building long-term customer relationships.”
Revix’s Proof of Reserves report can be downloaded from its website at revix.com