If you’re reading this, you clearly have a vested interest in the future of accounting and finance. Here at Multisig, we want to know what’s coming next. What’s the future of accounting and finance? Who is doing the work of accounting for the wave of digital assets we’re seeing grow every day?
We’re here to connect web3 thought leaders with a community of accounting and finance professionals on a mission to shape the future of this industry. While everyone else is focused on building the more glamorous parts of web3 — things like NFTs, DAOs, DeFi — we’re quietly constructing the foundation of our next financial system. It may be a quiet revolution, but it’s a revolution nonetheless.
And if it’s a revolution we’re a part of, then this is our Federalist Papers. You’re reading the very first issue of Multisig Media’s brand new newsletter, Triple Entry. We want this newsletter to stand out from the rest of what hits your inbox. Expect a bi-weekly curation of only the most relevant and high quality information and news in digital asset accounting and finance…plus some other goodies we’ve got up our sleeve (hint: if you thought accountants couldn’t meme, think again).
As for the name, we chose “Triple Entry” for a handful of reasons. Triple entry offers a new paradigm to build on the successes (and solve the shortcomings of) the well-known double entry accounting. It’s also a term synonymous with greater trust, transparency, and representative of the larger focus of bookkeeping and accounting integrity. Finally, to quote David Hartley on the current problem of widely implementing this nascent method, “It’s the same problem as the first telephone. It only makes sense if there are enough others.” You’re part of the “others.” The community is growing. That’s Triple Entry.
“Calc”-you-later,
Trevor
Neither Comprehensive Nor a Framework
Last week, the White House released its “First-Ever Comprehensive Framework for Responsible Development of Digital Assets” as a follow-up to Biden’s executive order. We figured we’d give you the TL;DR and spare you the monotony of reading hundreds of pages of government reports; then again, some of us inspect company filings for a living.
- Enforcement is top of mind for the White House. The Biden Administration calls for the SEC and CFTC to “aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space.” That seems a bit…aggressive.
- The government wants you to know that crypto is risky (surprise!). The report references asset volatility, misinformation, non-compliance, and a rise in scams—nothing new if you follow the space. We’ve heard it a million times: crypto is risky.
- Illicit finance is on the rise. Or is it? One section reports an increase in fraud, scams, and theft of digital assets, citing an FBI statistic that “reported monetary losses from digital asset scams were nearly 600 percent higher in 2021 than the year before.” Cross-reference that stat with one from the Chainalysis 2022 Crypto Crime Report: total transaction volume was up 567% from 2020’s totals, yet the increase in illicit transaction volume was just 79% — representing just 0.15% of transaction volume.
- Global financial leadership is the name of the game. The Framework boasts an entire section titled “Reinforcing Our Global Financial Leadership and Competitiveness,” and the Treasury’s recent “Future of Money and Payments” report assesses the viability of a CBDC primarily from this perspective.
- The Administration plans to lead with the public sector. US agencies plan to “leverage US positions in international organizations to message US values related to digital assets.” The private sector has been leading the charge on blockchain technology and digital assets since the advent of Bitcoin, so why not work alongside it? Maybe the government is just upset that billionaire rocket boys are upstaging NASA. 🤔
- A CBDC is TBD. The Treasury Department suggests that, while a CBDC (central bank digital currency; not a new strain of cannabis oil) could create more efficient and inclusive payment systems, it wouldn’t do much to help the US maintain its global financial leadership. Ultimately, the report makes several recommendations to bolster payment system innovation, the first of which stands out: “advance work on a possible US CBDC, in case one is determined to be in the national interest.”
All in all, the White House guidance feels about as “comprehensive” as the the new audit intern’s workpapers, and certainly isn’t a “framework.” It says a lot but solves little in establishing a clear path forward for digital assets. That being said, it could have been much, much worse.
Finally, Movement from FASB
For YEARS, businesses and investors have begged the Financial Accounting Standards Board (FASB), the standard-setter of the accounting world, to establish clear rules on how to account for and disclose digital assets. For years FASB has said, “Nah, we’re good; crypto investment isn’t widespread enough to do that.”
You can imagine the relief when the FASB added this crypto project to its agenda in May this year. In a recent board meeting, the FASB took another big step towards enacting clear guidance by outlining its criteria for the digital assets that a new rule would cover. Their project will include crypto assets that:
- Meet the definition of an intangible asset as defined in Codification
- Do not provide the asset holder with enforceable rights to, or claims on, underlying goods, services, or other assets
- Are created or reside on a distributed ledger or “blockchain”
- Are secured through cryptography
- Are fungible.
Interestingly, this would exclude NFTs and some stablecoins. After hearing horror stories from the accounting folk over at popular NFT exchange OpenSea, I would conveniently decide NFTs were ‘out-of-scope’ too. 😅
Now that we have figured out all the scoping, can we just ditch the intangible asset accounting thing and move on to fair value reporting? One step closer to sanity for my fellow crypto accountants.
Why Banks are Holding Off on Holding Crypto
Banks are balancing their crypto appetite after digging into the SEC balance sheet guidance issued in March. After the SEC announced accounting bulletin guidance from behind closed doors, many banks are holding off on holding crypto. The accounting guidance requires all public companies holding crypto assets for clients to report them as liabilities on their balance sheets. This guidance is especially problematic for banks that are also subject to strict capital requirements, specifically, the requirement to hold cash against balance sheet liabilities.
Diogo Mónica, President of Anchorage Digital, told Reuters that the capital cost is “completely unsupportable” and “every single bank” Anchorage works with is now waiting on regulators before proceeding to work with Anchorage. Who wants to go shopping for that cash or credit line to make sure you can 1:1 match your digital assets in custody? Sounds like a hard pitch to the boss. Oh, and don’t forget to create a robust crypto treasury team that can rebalance all of this for quarterly reporting. 😓
Spotlight
Typically, this is where we will highlight cool companies doing cool things in crypto accounting and finance. For example, last week, we hosted a kick-ass webinar with Valkyrie and ZenLedger. We’ll be honest; since this is the first issue of Triple Entry, we didn’t think that far ahead. 😬
We thought about highlighting ourselves — you know because such is the life of an accountant: constantly patting yourself on the back because no one else will. 🥲 Instead, we’ll just leave this section open as a placeholder.
If you’re a cool company doing cool things (or even an uncool company doing cool things) in crypto accounting and finance, this spot is yours for the taking!
The Water Cooler 🚰
Things worth talking about at the office water cooler…if you 1) talk to people, 2) still work in an office, and 3) have a water cooler.
Other Significant Findings
- Coloradans (Coloradoans?), if you enjoy paying a fee for paying your fees to the government (aka taxes), you can now pay state taxes with crypto!
- You know how auditors have a knack for requesting more evidence even after you’ve basically shared half of your journal entries? Well, the SEC and Ripple Labs can relate. Each filed motions for summary judgment, claiming that either the SEC or Ripple had provided enough information to prove whether or not Ripple violated securities laws by selling XRP.
- Traditional finance (TradFi) players continue to enter crypto despite the bear market. Most recently, NASDAQ announced plans to start a crypto custody service. They were probably on the sidelines waiting for regulatory clarity but realized they weren’t getting any after last week’s White House briefing. 😝
Funding
If you don’t think there’s an opportunity in accounting and finance for digital assets, think again. It may be the less-sexy side of web3, but this week alone, four crypto accounting software startups collectively raised $26.3 million. 🤯
Interestingly, these companies are likely all direct competitors, and each is building financial management software specifically for web3 teams. At this stage of the game, it’s too early to tell how their offerings might differ. Still, they all promise to solve the massive headache of aggregating on-chain data into usable finance and accounting data.
Of the four, Integral ($8.5M round) probably does the best job of selling the problem/solution behind their product. Volatility of crypto markets + above-average liquidity risk + open-source financial data = financial insights 7-30 days after month-end just won’t cut it. If I had to guess, Tres: ($7.6M round) is appealing to a more international audience with its namesake (’tres’ is Spanish for ‘three’). No, I’m not serious, and yes, I know you know what “tres” means. Nilos ($5.2M) differentiates itself slightly by being the unified crypto and fiat treasury platform for business. Headquarters ($5M round) takes the cake for the best website — though the highlighter yellow drudges up trauma from my former Senior Manager’s work paper comments.
Extraordinary Items
Happy Busy Season Pt. 2, Tax Accountants!
