One of our standards for a reliable stablecoin is an emphasis on regular third-party audits – both physical and digital accounting of the currency issued and regular examinations of the backing in the vault. Lots of cryptos talk about it. Few actually do it. Far fewer have audits performed by independent third parties. And no one speaks openly about the process. But having this additional assurance of the currency’s backing is good for token holders. It brings transparency to the cryptocurrency, and accountability to everyone involved.

So how do we do it? When precious metals are stored in a vault at a depository, the depository has their own internal auditors that examine the vault to ensure that the appropriate amount of metals is on hand. Having this audit is important, but ultimately the auditor works for the depository. Because of this, LD2 retains an independent, world-class auditing firm to handle the vault inspections and reporting, working on behalf of all the token holders. Each month, these auditors do a physical vault examination to establish exactly how many ounces of metal are in the vault.

The auditor attests to this number on the LD2 smart contract via an Ethereum transaction. Because of the public nature of the Ethereum blockchain, this transaction is available for the world to see. The auditors will only attest to what they count, so if there is any inconsistency, it will be permanently be recorded on the LD2 smart contract. Anyone can view the verification, check the total currency supply on the contract, and see that at any time there is, in fact, one ounce of silver in the vault for every token issued.

Finally, the Auditor issues a written examination report that includes the date of the examination, the total metal in the vault, the Ethereum transaction identifier that supports the examination report, and the examiner’s name and signature. This report is produced in a PDF and published on our website, again so that everyone can see exactly how much metal is in the vault, even if they don’t understand how to directly check the contract details.

What’s more, the LD2 smart contract was designed in such a way that other developers can easily build tools to monitor the smart contract for inconsistencies. We believe that auditing and transparency should be core values of every stablecoin, so we go the extra mile to set the bar high with LD2.