Why audits matter more in crypto

An independent audit is the most basic form of verification that a fund’s reported numbers are real. In traditional finance, this is table stakes. Nobody invests in an unaudited hedge fund, at least not at the institutional level. But the crypto fund industry is still young enough that not every fund has made it to this baseline. Some newer or smaller funds still operate without independent audits, especially outside the U.S. and Cayman Islands jurisdictions where regulatory requirements are looser.

For allocators, the absence of an auditor is an automatic disqualifier. It means there’s no independent party confirming that the fund’s reported performance, NAV calculations, and asset holdings are accurate. In a space where FTX managed to raise billions from sophisticated investors despite what turned out to be fabricated financials, the value of an independent audit is hard to overstate.

But not all audits are equal. An audit from a firm with deep experience in digital assets is worth more than one from a generalist firm that handles crypto as a side project. The technical challenges of verifying on-chain assets, reconciling trades across multiple exchanges, and valuing non-standard positions (DeFi LP tokens, locked staking positions, unvested SAFTs) require specialized knowledge that not every audit firm has built.

The most common auditors for crypto funds

We track auditor data across the 300+ funds in our Performance Database. The distribution is more concentrated than you might expect:

Cohen & Company’s dominance tells you something about this market. They were one of the first audit firms to build a dedicated digital asset practice, and they publish sample financial statements specifically for crypto hedge funds under U.S. GAAP. That kind of early specialization also creates a network effect: fund managers choose them because allocators recognize the name, and allocators are comfortable because they know Cohen understands the asset class.

RSM and Grant Thornton are solid mid-tier firms with established alternative investment practices that expanded into crypto. EisnerAmper has a strong presence in the New York hedge fund market. The Big Four (KPMG, EY, Deloitte, PwC) handle the largest funds but are less common among smaller crypto-native managers, partly because of fee structures and partly because smaller funds dont hit the revenue threshold that makes Big Four engagement economic.

The “other” category includes regional firms, offshore auditors (common for Cayman and BVI fund structures), and newer entrants. Some of these are perfectly capable. Others are firms with limited crypto experience that happened to win the engagement. This is where allocator scrutiny matters.

What makes crypto fund audits different

Traditional hedge fund audits follow a well-established playbook. The auditor confirms holdings with the prime broker, verifies trade execution records, checks NAV calculations against the administrator’s records, and tests the valuation of any hard-to-value positions. The prime broker and administrator provide independent confirmations, and the custodial chain is well-documented.

Crypto fund audits are harder for several specific reasons.

Verifying on-chain holdings

The auditor needs to confirm that the fund actually holds the assets it claims. For assets on a blockchain, this means understanding wallet addresses, multi-sig configurations, and how to verify balances on-chain. Some auditors have built tools for this. Others still rely on screenshots from exchange accounts, which is not great.

Multi-exchange pricing

A single token might trade on ten different exchanges at slightly different prices. Which price do you use for the NAV calculation? The fund’s valuation policy should specify this (volume-weighted average price across major exchanges is common), but the auditor needs to verify the methodology is applied consistently. Spread across hundreds of tokens and a full year of daily NAVs, this gets complicated fast.

Non-standard asset types

DeFi LP positions, staked tokens with lockup periods, unvested SAFT (Simple Agreement for Future Tokens) investments, governance tokens, airdrops, forked coins. None of these fit cleanly into traditional accounting categories. The auditor needs to understand what these assets are, how they should be valued under applicable accounting standards (U.S. GAAP or IFRS), and whether the fund’s treatment is reasonable.

Reconciliation across venues

A traditional fund might trade through one or two prime brokers. A crypto fund might trade on five exchanges, use two OTC desks, have assets in three custodians, and interact with a dozen DeFi protocols. Reconciling all of that into a single, consistent set of books is a significant operational lift for both the fund and its auditor.

The major audit firms and their crypto practices

What allocators should ask about audits

Who is the auditor and do they have crypto experience? A recognizable name from the list above is reassuring. A firm you’ve never heard of isn’t automatically disqualifying, but you should ask how many crypto fund audits they’ve completed and whether they have staff with blockchain-specific training.

When was the last audit completed? Crypto fund audits often take longer than traditional fund audits because of the complexity involved. But if the fund’s most recent audit is more than 18 months old, ask why. Delays can signal valuation disputes, auditor turnover, or operational problems.

Were there any qualifications or material findings? A clean audit opinion (unqualified) means the auditor found the financial statements to be fairly presented. A qualified opinion or a going-concern note means something was off. Ask for the full audit report, not just a summary.

What is the scope of the audit? Some fund audits cover only the fund vehicle itself, not the management company. Others are limited in scope (for example, they might not cover DeFi positions or verify on-chain balances independently). Understanding what the audit does and doesn’t cover is as important as knowing who performed it.

Has the fund changed auditors recently? Auditor changes happen for legitimate reasons (fee negotiation, wanting a more specialized firm). But a fund that has changed auditors three times in five years is worth questioning. Frequent changes can indicate disagreements over valuation or accounting treatment.

For a complete DD framework that covers auditors alongside custody, counterparty risk, fees, and more, see our due diligence checklist.

The valuation problem

Valuation is where most crypto fund audit disputes actually happen. Liquid positions (BTC, ETH, top-50 tokens on major exchanges) are straightforward. There’s sufficient market data to establish fair value. The fund’s valuation policy should specify the pricing source and methodology, and the auditor can verify it independently.

The hard cases are everything else. A SAFT agreement for tokens that haven’t launched yet. An LP position in a DeFi protocol where the token price is derived from an automated market maker with thin liquidity. Staked tokens with a six-month unbonding period. Tokens received from an airdrop that have no meaningful secondary market. Equity in a pre-revenue blockchain company where no comparable public companies exist.

Each of these requires judgment calls from the fund manager and the auditor. The FASB’s fair value framework (ASC 820) provides the hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), Level 3 (unobservable inputs requiring models). Most of the interesting crypto positions live in Level 2 or Level 3, which means significant estimation and judgment are involved.

As an allocator, ask the fund what percentage of their portfolio is in Level 3 assets. A fund with 80% in Level 3 positions has a very different audit complexity (and valuation uncertainty) than one with 95% in Level 1 liquid tokens.