FTX collapse: Andreessen-backed CoinSwitch says it holds sufficient reserves to match customer investments

Coinswitch CEO Ashish Singhal

CoinSwitch, one of India's largest cryptocurrency exchanges with 18 million users, announced an independent third-party report on November 17 that “confirms that its overall holdings of Crypto and INR balances are higher than those of customer’s holdings of Crypto and INR balances on CoinSwitch."

Its assurance comes in the wake of the collapse and bankruptcy of FTX, one of the world's largest crypto exchanges, in which millions of customers lost money, triggering a chain reaction that has impacted other crypto companies and eroded trust in the digital asset.

CoinSwitch hired consulting firm INMACS in July 2022 to study the company's processes and procedures and to carry out agreed-upon procedures (AUP) in November 2022. INMACS specialises in assurance, taxation, regulatory advisory, and risk management, among other services, said the press statement.

An agreed-upon procedure (AUP) is a standard when a company specifies the goal or objective when hiring an external party to audit a specific business process.

The report indicates that CoinSwitch's total INR and virtual digital assets (VDA) holdings exceed the VDA and INR held on behalf of its platform's users.

“Transparency and traceability are business imperatives for us. We are committed to building a multi-asset buy-sell platform that users can trust. There are several other ways to assure liquidity of a crypto platform, including proof of reserves. This report is our effort to affirm that our holdings are greater than what customers have purchased on CoinSwitch,” said Ashish Singhal, co-founder and CEO, CoinSwitch.

INMACS obtained individual Indian fiat currency (INR) balances with banks, payment gateways, and crypto exchanges using snapshots of web logins on these sources' web portals or bank, payment gateway, and crypto exchange statements of account provided by CoinSwitch, according to the press statement.

To complete the procedure, it obtained from CoinSwitch a detailed list of crypto custody services, counter-party sources including crypto exchanges, and wallet addresses; using a snapshot of web logins on the web portal of these sources.

INMACS also obtained a detailed listing of customer holdings in VDA and cryptos with CoinSwitch from its database. It then compared CoinSwitch's total VDA and INR holdings to customers' VDA and INR holdings to calculate its reserves and liabilities.

“We will continue to evaluate other ways of establishing trust and transparency as we help India," added Singhal.

After the collapse of FTX, crypto investors have been asking for more transparency even from India’s centralised crypto exchanges. They are now in early stages of discussion exploring an open-source solution for tracking assets and liabilities on the exchanges.

The industry players are currently figuring a way out to arrive at a consensus on taking the industry forward and ensure bad actors are weeded out and exchanges can be verified.

Sumit Gupta, co-founder of rival firm CoinDCX in a blogpost said that proof of reserve without Proof of liabilities is only half the picture. He also published a snapshot of Reserves to Liabilities ratio snapshot of the top ten assets that CoinDCX holds.

However, crypto investors have been demanding more transparency with audited reports from centralized exchanges on a regular basis after the FTX fiasco which sent shockwaves across the global crypto ecosystem.