Kevin Fitzgerald on GENIUS Act Audits and Why Every Company Needs a

Kevin, what is going on, man? How you doing? Oh, we're doing great. We're doing great. I'm solo hosting today. I know that you were in an email thread with Zach Fowler, and what what a gift it would have been if it was three people here, but you're stuck with me today. No. We'll have to just do another one is what that means with Zach once he's back too. Yeah, man. So how many months have you been into the new the new role? Kind of give give an update on on where you've been and the the new job that you're at now.

Yeah. So this this is week four at

still new, but so prior to HD, I was over at and before that PwC, about ten years between the two. But the four most recent years at were all focused on digital assets, specifically on the audit side. So that's my background, CPA on a financial statement audit side. And really within I was part of a team of subject matter experts tagged to the digital asset audit practice supporting all of digital asset audits.

So a group of of CPAs and developers, and learned a ton, saw an incredible amount of fact patterns while I was there, and then recently joined H Digital to build out a a US practice. If you haven't heard of of H Digital before, it is another professional services firm, audit, accounting, tax, bookkeeping, all of the the things you'd expect, but solely focused on digital assets. So PwC, the big four, obviously do a little bit of everything.

H Digital is a specialized firm focused solely on digital assets, and we can dive into what that means Yeah. The high level thing. That's huge. I mean, we have you know, given your background, we have these, like, big players, these big four players who are so they're involved in the conversation. You see research reports coming out. You see direct client relationships that these folks have with big issuers.

Tell us a little bit about maybe the advantages or the state of the landscape for, like if I'm a regulated issuer like Circle or Braille or I need these types of services. I guess two part question here. Like, what is the current landscape? Do I lead before HD Digital? Am I having to go with one of those big four players?

And then what what does the typical relationship look like thereafter? Yeah. Definitely. You don't have to go with one of the big four. Of course, HD is is out there as a resource. But by no means am I going to disparage the the big four. Having worked at and PwC, but on the digital asset side, there's a ton of smart people there that know what they're talking about.

I think the the difference when I think about it, comparing it now to HT, is at any big big company, any big four firm, you just have to make sure you find the right people, the ones that speak the language that that you speak, which is on chain data. For the most part, the benefit of a company like HT Digital is is everyone speaks on chain. That that's the, like the the basis of the company is that this is a group of individuals that understand and speak digital assets. And so I've I've really appreciated that.

And there are a lot of other providers out there as well. I would say, broadly speaking, whenever you're going through and deciding who you wanna work with from an audit accounting tax perspective, really do your due diligence because it I almost think of it like a a marriage that you're entering into. Make sure you you have plenty of conversations with different providers, understand what makes them each unique, and then, of course, which individuals on the team you're going to be working with.

So if if you work Mhmm. Or speak with someone at a big company, make sure you're asking the questions of, are you going to be the the one I actually work with on a day to day basis? Because that can sometimes get lost. Same same thing of of any smaller company too. But that that's I would say there's there's plenty of providers out there, but making sure you're you're choosing the one that matches your fact pattern best. Yeah. So what what is the

what's the core pitch to what you get as a core benefit by working with HD Digital or or just, like, the the class of, like, professional services that are not the big four? What are the added benefits or, like, unique advantages there that you see that you're able to serve clients in a, you know, unique way? I'm sure that there were, like, some specific things that attracted you to having more of this, like, crypto native, digital asset native team that you'd work with directly. Yeah. Absolutely.

I'd say the the biggest one that stands out immediately is speed. So at any big company,

there are levels of approval that you'll have to work with. And the one that I like to think about in terms of a a real, like, life fact pattern is just client onboarding. So if you go to any big company, any big four, there are it's quite some time to get onboarded onto them. While at HD Digital, we prioritize speed. If if the fact pattern matches and we want to get you all onboarded, then let's make that happen, and we're able to move fast because of the size of the company that we are.

And that's something that I've I've really appreciated thus far, and something that attracted me to h digital. The other thing is the fact that everyone does speak this digital asset language. A lot of times, maybe if you've already gone through an audit with another company, you'll have to explain things to them in detail around how bridges work, or how many accounts you have set up. What what does your wallet infrastructure look like? And that can take a lot of time, especially Mhmm.

When you're thinking about from an accounting perspective, you have to bring in developers as well to that conversation. There were a lot of times, I remember being on calls, where we needed to bring in the right people, and then we'd have to reschedule because the right people weren't on the call. And it just becomes a huge time suck for your your back office bookkeeping services, whereas, obviously, if if you get on the phone with people at at HT, we know what you're talking about.

We we have our own developer team. We've got our own tech stack built out. This is something that we deal with every day. This is all we do, is digital asset audit and accounting. And I think that's been something that's really impressive to me, and something that attracted me to the firm. Yeah. Talk a little bit about the current state of building out The US function. So it sounds like you've come in here, and you're really focused on that market specifically.

This is the market that we are based in, that we know most. You have a ton of stablecoin focused legislation and rules and regulation coming out. How are you thinking about The US market and specifically how that might relate to a the stablecoin industry, like an issuer or

person who might be integrating stablecoins into their stack. What's the go to market here in The US that you're taking? Yeah. So I I think there's a ton of opportunity here in The US based on the conversations I've had over the last four years. HD Digital brand new to The US. I'm employee number one, and and as of today, I am the only employee here in The US. It's kinda holding it down. I love it. We are actively looking to to build out a full team, getting all the the proper licensing in place as we speak.

So that's been really exciting to get that up and running. Hope hopefully, should have that here soon enough. But really, think you hit on it, the Genius Act, and more broadly, how the regulatory environment has shifted over the last couple years has brought a lot of companies that left The US back to The US, and encouraged a lot of new companies to build here in The US.

And I think that one of the things that we're thinking about is is all those companies that are coming back or just getting started are going to need audits at the end of the day, financial statement audits. And so that's why we think HT is is well positioned to serve those companies that are are here in The US. On the the Genius Act specifically that you mentioned, one of the the requirements of the act is monthly attestations. So we can talk a little bit about that too.

Companies, stablecoin issuers, as you're thinking, if you're new or you're existing, monthly attestations should be a a core part of how you're thinking about building out your your stablecoin infrastructure. Years ago, it was it was really just Circle that was putting out the monthly attestations, and and honestly, a huge kudos to them for for doing that. There was no think that's how we met originally because I I saw those. Was like, man, this is such a cool opportunity.

Like, legally, everyone's gotta do this now. Like, who's who's going to win that race? It's way it's way easier to sell things or grow things when it's now a legal requirement to do so. Way easier. Way easier. Especially from an audit perspective. If you can point to

that says you have to do this, it's you're able to get everyone much more comfortable with that. So Circle was putting these out for years and have been, and the monthly reserve is probably everyone knows, but it just just in a high level shows the circulating supply of the tokens relative to the reserve backing the tokens, and of course you want your reserves to be greater than the circulating supply, so you feel comfortable that there's the assets backing the tokens.

That was something that was not required prior to Genius, but more of a best practice. Genius now will require those monthly attestations, and those must be certified by a third party independent auditor. So that's where companies like HT, obviously, Deloitte, PwC, they they do these types of attestations as well. But finding one that that speaks the on chain language, I think, is is gonna be beneficial for stablecoin issuers.

And as you build out your own stablecoin infrastructure, thinking about how it maps onto Genius, making sure that the reserve requirements map to what you can have for Genius. So you can't have a bunch of Bitcoin that you're saying is backing your your stablecoin. It needs to be US dollars. It needs to be US treasuries. There are certain things that you need to have, your reserves that map onto that existing or new infrastructure and and legislation.

Are you finding right now based on and and this is something that's gonna be required in January as Genius becomes in effect. So technically, we're still not living in that reality. Is that true? That's correct.

So we have essentially through the end of the year where you where we can kind of, like I'm imagining you're you're you and the team are going or maybe just you and The US are going, and you're really pursuing a lot of these conversations, are you finding right now maybe we're just early here, so this is maybe not the best question. But are you finding that a lot of the the people that need to go do this have already been thinking about this? They have this in place. They're like, yeah, we know.

Here's what we're doing about it. Or is it kind of more of a you have to convince people to to care or, like, start prioritizing this? Or what what's the experience been so far in in getting people up to speed with getting ready for January?

Yeah. It really has been a mix, a lot of the conversations. There are some companies that have all of the controls in place, and they have onboarded an auditor, and they're ready to go and hit the ground running, and they're seven, eight months ahead of of pace, and that's great to see. There are other companies that haven't thought about this at all, and they're asking the the one on one type questions, which is fine.

I think we still have time, but that time is is becoming shorter and shorter to get those questions answered. And in terms of just onboarding a service provider to perform these monthly attestations, you should bank in some time for that as well, so they can get comfortable with your infrastructure and how you have everything set up. So it it is a mix, but the questions that I think people are gonna start start to want to ask is one is just to make sure you have a a service provider set up. That's that's the base.

And then looking at the existing Genius requirements, and then understanding where the gaps exist in your current process versus what Genius requires, things like segregated accounts for the stablecoins versus your own assets, those need to be completely separate. You can't have any sort of commingling there between your own assets and the reserves backing the stablecoin. And then there's other things too that you you're gonna wanna start thinking about as you build out your stablecoin infrastructure.

One thing that I think is is unique that HT Digital offers is proof of reserves. So we talked about monthly attestations, which is basically what what Circle does is is a perfect example. Every month, they put out an attestation report that shows the reserves backing the stablecoin. Fantastic to see. Proof of reserves is more of a real time view into the reserves backing your stablecoin.

So whereas you're looking a month in arrears with something like USDC, a proof of reserve real time report would be something that shows either on a daily basis or a weekly basis or even real time, just maybe the gold standard here of the reserves that are backing the stablecoin. And I think just better matches what the industry somewhat is moving towards.

So the benefits here, enhanced trust and compliance, efficiency, accuracy. I'd imagine the you said the integration here is is interesting. Like, I'm imagining there are a couple different types of companies that you would be integrating with. Like, you know, an m zero is a very different build than a a regulated counterparty like Braille or Anchorage or these types of companies? Like, how do you think about the, in your mind, core maybe types of stablecoin issuers or types of clients rather for you guys?

Like, how are you categorizing those in terms of, like, the different structures they might have of of reserves and how they work? Yeah. So there's the the companies like Circle that manage the end to end process.

They're managing the reserves, they're managing the actual issuance of the stablecoin, the mint burn, all of that. Then there's the companies like mZero, the companies like Bridge that are onboarding companies that want to issue their own stablecoin, but don't necessarily have all of the resources to build out the full infrastructure.

And so those companies like a Bridge or an mZero or even a Bastion as well are companies where, from from our perspective, we can work with them and then serve all of their clients at once once with which obviously gains some efficiency there, which I think is is more unique than an individual stablecoin provider. So those are the the two buckets that we're looking at right now. It's more of like the infrastructure player, or like a Paxos as well, versus the actual issuer and does it all theirselves themselves.

Yeah. So you go to

you go to Bastion, you go to Bridge, and you you have this conversation. I'm just using them as examples, not not saying you're this is exactly true with them specifically, but these core services. So with USDC, it's kind of simple in some ways because it's it's you know, Circle and USDC are kind of hip to hip. It gets a little bit more complex with, yeah, like, the the bastion model or the m zero model or these branded or custom built stablecoins.

Is that the understanding is you can work directly with that parent issuer who's who's really on the hook for all of those things, and then they can almost provide that attestation to their issuance, you know, subpartners, if you will. Is that a good way to think about it? It's not Yeah. It's not like the you know, Dakota's just doing something with DKUSD, a stablecoin that bridge issues that is Dakota's right now, for example. Like, it wouldn't be Dakota's responsibility

to go work with HT Digital, Bridge, or a company on the hook. That would be who has the relationship. Yeah. Exactly right. So in that case, Bridge would be doing it. The other one that just came out recently, USAT, The US instance of Tethr. Anchorage was the one that actually issued the monthly attestation for USAT, and so Anchorage had to work with their auditors to get that attestation out. So USAT, the entity itself, did not issue the attestation.

Got it. Okay. Yeah. How competitive, candidly, is this space? Like, feel like there aren't many, at least right now, we're looking at the volumes, like, the volumes are fairly centralized still with, like, a handful of people you could probably, like, all talk to in a couple weeks. Like, how are you thinking about the competitive lane of HT Digital and others in the stack?

Are you finding that it's a pretty competitive conversation, or do you feel like things are just, like, very obviously it's a more open space right now? So, again, I'm sorry. I keep doing two part questions. But, like, what is the competitive reality like? And then what's really the addressable market in your mind given kind of the centralization of some of this right now? And are you thinking about Stablecoin specifically or just the digital asset?

Stablecoin And and also if you're, like, where you see Stablecoin specifically in the conversation

of broader digital assets, if that's, like, maybe not as interesting or part of the revenue strategy in your mind if it's smaller? Yeah. So I think it definitely is dominated by a few larger players on the stablecoin issuance side. But I think the one thing we've come to realize over the last year or two is that every company now needs to have a stablecoin strategy, whether that's in your treasury management system or actually issuing your own stablecoin.

And I think companies like Bridge, companies like Bastion and mZero are helping make it a lot easier for issuers that want their own stablecoin out there to to actually do that. And so I think there there absolutely will be more activity here, but I I don't know that everyone in the world needs to issue their own stablecoin. So that's not probably where we're headed. I think there's there's a finite amount of of companies where it makes sense to have a stablecoin.

So And just making sure that those companies have the right processes and controls in place to meet these these regulatory requirements. And and where do you so you see stablecoins issuers,

this conversation, and the lane that we're in as a, yeah, a big part of the go to market focus, would you say? Or maybe one of a few, like, key focus areas for you? Or are there's, like, stablecoins, issuers, genius, is that a big part of the focus going into the new year? Absolutely. Yeah. A huge focus. I mean, stablecoins and tokenization

are maybe 90% of conversations that we're we're having now Okay. Revolving around those topics. It really is a focus for everyone. I think stablecoins have somewhat emerged within digital assets as almost bigger than or separate of an an asset class that every company needs to think about. Whether or not you're investing in Bitcoin and Ethereum, you need to think about how stablecoins impact your business.

And so we're having those types of conversations with clients, with potential clients, and really helping them think through those things. Whether or not they're actually issuing the stablecoins or leveraging them as part of their business, those are are two separate conversations. But I think it is something that at least everyone needs to be be thinking about at this point, and absolutely a pillar of kind of our go to market activity right now. Yeah.

What is the most difficult part about this, like, from from an audit attestation

when you're serving these clients and when you even you as a partner in this company, like, think about competitive advantage and moats and defensibility, I think maybe I'm just so twisted right now. That's that's all I think about with the rise of LLM domination and all of these things. Like, what what are the hardest parts about HT Digital and the problems that you're solving that you feel like are gonna be defensible against maybe other firms or or other ways of doing business? What's the Yeah. Yeah.

Most difficult part about this? The actual auditing of stablecoins

and issuing a monthly attestation, not too difficult. Making sure you have all the controls in place. Yes, there's certainly some legwork that needs to be done to get there, but Shoot. Nope. When we're talking about, like, Kelp DAO

all that stuff, it's like, oh, that's pretty freaking complex. But it's like, hey. Are these still one to one? Like, it seems like, okay. I could get my head around that. I don't wanna underplay, like, the complexity there, but it's like, doesn't seem

like the most difficult conversation to go figure out. No. It certainly isn't. What what's in the bank account? What's the circulating supply? I think the the more complex areas get into the controls that you wanna have in place. So, yes, there's x amount of dollars in the bank account, but how do I know that there are only the appropriate employees that have access to the keys that can mint and burn the stablecoins?

What what happens if there's a rogue employee that gets access and starts minting hundreds of thousands or even millions of dollars worth of stablecoins that are unreserved, and then those get into the the wild? Though those control considerations, I'd say, are where companies are going to spend the most amount of time, and that's where you have something like a full financial statement audit that you get to benefit from. So the attestation the monthly attestation for stablecoins is one piece.

Circle, as we're continuing on with this example, also has a full financial statement audit that they perform. And as a result of that, their auditor gets comfortable around all of the the controls and processes in place, and they're able to leverage that work as part of the attestation. So that's where, I think, is one area where you really wanna focus around is the controls piece. But also the other piece that you were talking about in terms of just a moat from an audit perspective.

I mean, it's it's trust at the end of the day. The big four have a moat because they're the big four. It is what it is. They've developed and built this trust over hundreds of of years that if if you want something done at the highest level, then you tend to think big four first. And so what what I think our focus is right now is building that same moat in the digital asset space. We want to be the first company that you think of when you're a digital asset company and you need some audit or accounting support.

And so we're focused on building that moat for us, and that's really where we're spending a lot of our time. Who's typically the the champion that you're talking with internally who's telling the founder or the CEO that they need to be doing this? Like,

I'm guessing it's not the founder as much, but who is typically the person that's like, hey. We need to get this going. Is this the CFO, treasurer? Like, who is that person? Yeah. Typically, CFO or CAO.

That that person tends to be the one driving this conversation often. You're right. The CEO tends to think about the the and the timeline associated with these these types of asks. But I think there is a shift where this isn't just a check the box exercise. The compliance is is more of a benefit than it ever has been. Circle, I think, really pioneered this where the monthly attestations that they invested in helped them become a leader in this space when it wasn't required.

So what what if we fast forward five years from now, what are companies doing today that's gonna make them a pioneer in this space, going above and beyond what the the minimum requirements are? And and that's why I tend to think something like proof of reserves could be that. In five years when we're having this conversation, the the bare minimum is gonna be a real time proof of reserve. Yeah. Yeah.

Are there things that you find are maybe as we tease this a little bit, like, what what is possible with HT Digital and working with you guys that may not necessarily be legally required under Genius that you guys can help with? Like, I'm imagining there are certain things that can be tacked on or explored or or audited more specifically.

I I think that is an interesting point that Circle did lead the way, and they did play by some the rules that they set for themselves, which did create, I think, a lot of trust and reputational credibility that they had with other institutions who adopted them in a big way even before Genius was was a thing.

What are some of those things that this this platform or this proof of reserves system gives may not be Genius required, but could help create more of that visibility and trust for issuers or folks in stablecoins?

Yeah. I think that, generally speaking, it's the real time nature of auditing that I think we're shifting towards. So a typical audit life cycle, the real bulk of the work occurs after year end. After the books are closed, an auditor will come in, and this is of any company, not just a digital asset company, will come in after year end and start performing their work and making sure that they're getting all of their samples tested and all of that.

I think what we'll start to shift towards, especially with companies that are actively managing their business on chain, where you can see everything real time, I think we'll see the auditor perform their work real time along with the company, and as a result, be able to catch things real time. Typically, when you're performing an audit, you're catching any sort of errors way after they've they've been performed, way way later on.

And so shifting towards this real time audit where you're able to actually provide assurance real time, and that's the proof of reserves is is one example of that. But if if you could see real time financial statements as well in the future, instead of just quarterly for public companies, then I think that could be something that that becomes really interesting.

Not something we're actively doing quite yet, but if your company's on chain, then I think it's it's reasonable to conclude that we might get there at some point. Last question for you as we close here. What would you say are the biggest hurdles

or things that are maybe some feelings of adversity or building out this this go to market in The US, building that brand, being able to be successful in the early days of this? Yeah. What are some of the key feelings of, like, hurdles that you you feel like are are either being faced today or on the way that you you were noticing and you were excited to tackle?

Yeah. Definitely. So I think the first thing is just education of who h t digital is. When when you're choosing an auditor, you're choosing one that you you wanna trust. And so before you can get to trust, you have to know about them. And so HT Digital is is very well known in The UK where we're headquartered, but not as well here yet in The US. And so the the first phase and the initial hurdles is, hey, what is this company? Why should I trust them? Why why should I give you any sort of audit work?

When that is something that is is really important and built on trust in my in my work. And so that's something that's been an initial hurdle, but getting on on podcasts like this and speaking to people in the industry, I think is one way to to start combating that so people get to know us. We are a group of of auditors that are primarily ex big four. So you're you're actually getting the the big four benefit at a digital native firm.

Myself, as obviously former and PwC, maybe 70% of of the firm itself are big x big four in in some way or another. And so we have a lot of that big four experience, but just no digital assets. And so that's something that I think has been exciting to hit on early on. And then, of course, there's there's incumbents here in The US. There's the big four. There there's other audit firms. And I think there's the the more

that this space matures, and the more that the digital asset audit world matures as well, I it's only gonna benefit the industry as a whole. We we want less hacks. We want less issues. Everyone does. And so having this this kind of assurance, I think, provides that for everyone. Yeah. It's a great place to end, man. And you have I think when we think about audits, the the I'm also thinking of, like, your financial audits, you have security audits. There are different types.

You guys are just focused on the financial side. Correct? That's exactly right. Just financial statement audits. Okay. Are there any other key buckets that are kind of similar? Like, I'm sure like, you have security, finance. Are there any other core buckets that you see typical business models like this existing, or are those kind of the leading ones? Yeah. There's there's SOC reports as well. Compliance.

Yeah. Exactly. There's SOC one, and then SOC two reports. SOC two is the the more IT side, and SOC one is the internal controls over financial reporting. Those are are ones that we have as well that we offer. We can think about how those play in into your your business. But those are the other ones that come to mind initially. There's also there's smart contract audits. Those are completely separate from what we do. They're firms that specialize in that, but that that's another area as well in this space.

Super cool. Super cool. Alright, man.

Excited to hear about progress when we connect again. Would love to would love to hear how US build is going. Congrats on the new job. And Thank you. Yeah. Excited for Genius to hit hit the radar for hopefully a lot more CFOs as they prepare for next year. So good luck, and thanks for joining, man. Yeah. Thanks, Drew. Really appreciate the time. Awesome. Cheers. Bye.