From day one, Paxos’ approach to transparency has been to lead the industry and then evolve from there. We work with regulators to define what transparency means and how it looks. Most importantly, we continue to enhance transparency at every turn.
Paxos: publishing attestations from the start
Paxos has published attestations since we first issued stablecoins, to ensure that perception was reality and the reality was Paxos was going for more oversight, not less. To Paxos transparency means having a prudential regulator and submitting the amounts of tokens outstanding on-chain and the amount in our reserves at a given point in time to an independent review (for example, at 5 p.m. on the last day of the month).
Understanding the process of a review helps to put this kind of transparency in closer perspective. The mechanics of the process are key because the framework and rigor provide all parties confidence as the result:
- At the end of the month, an independent reviewer, in our case Withum*, reaches out to global banking and vault systems holding our reserves to request the amount in tokens outstanding on-chain at the end of the previous month.
- Withum checks that amount against amounts found on Etherscan, an Ethereum network API, for that time and day.
- Paxos participates by providing Withum with management attestations, saying that we have no knowledge of facts that would undermine the veracity of the data they are reviewing.
- Withum takes those management attestations at face value, so the result is not called an audit.
- Withum states in the attestation, “Our responsibility is to express an opinion on management’s assertions based on our examination.”
- Withum then describes their findings in a series of bullets, including the number of outstanding tokens compared to the amount in cash and US Treasuries in reserve accounts.
- They also note that the total stablecoin supply does not exceed the Reserve account attached.
- Withum also discloses that its standards are in accordance with the explicit standards of the American Institute of Certified Public Accountants (AICPA).
The attestations detail the number of outstanding tokens on-chain at a given time – in this case, at the end of the month. This process embodies the saying “trust but verify,” which is often repeated throughout the company.
Reserve reports raise the bar on transparency
In July 2022, we began publishing reserve reports which again showed our dedication to raising the bar on transparency. The reserve reports show the composition of our reserves in cash, US Treasuries and repurchasing agreements or repo as they’re commonly known. These reports are accurate down to the CUSIP.
Monthly reserve reports ensure greater transparency and establish the reliability of our financial data. We see this as another step forward. We want our stablecoin to be known for being fully backed and redeemable 1:1 and only holding cash and US Treasuries balances. This is where Paxos brings unique value.
A CUSIP number is a unique nine-digit identification number assigned to equity, debt and other securities registered in the United States and Canada. It is used to create a concrete distinction between securities that are traded on public markets.1
1 Investopedia, What Is a CUSIP Number, and How Do I Find a Stock or Bond CUSIP? Adam Hayes
Additional request helps secure transparency
As a New York State-chartered trust company regulated by the New York Department of Financial Services (NYDFS), we hold ourselves to the highest standards of a custodian. This attitude helped us in August 2022, when an additional layer of protection was added when Withum expanded its request to include the same information on outstanding tokens and reserve amounts, but for an additional random day from that same month – the random day being different each month.
The added dynamic of a random additional day leaves no opportunity for anyone to consider doing anything with the resources between end dates. Again Paxos saw this as another step forward in helping us be transparent.
From the beginning, we wanted our stablecoin to be known for being fully backed and redeemable 1:1. And we wanted to be known for holding stablecoin reserves in cash and US Treasuries; this is increasingly important as the digital asset industry shifts toward more oversight. We intend to continue raising the bar on transparency because we understand how crucial trust is in this newly developing space and we are dedicated to leading the way.
* WithumSmith+Brown, PC is an independent third-party accounting firm. Their appointment as Paxos’ examination provider has been approved by Paxos’ prudential regulator, the New York Statement Department of Financial Services, as detailed in Section 3 of their Dollar-Backed Stablecoins guidance.
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