From Niche to Necessity: Tax & Accounting for Web3 and Digital Assets

So today we have Gil Hildebrand on our podcast. He is the founder of gilded.finance and I'd like for him to just introduce himself. Welcome and welcome to the CFO's podcast Gil. Thanks, Taylor. Really happy to be here. So a little bit about my background, I was a software developer for 20 years, have no accounting experience directly. However, I have been an entrepreneur just as long as I've been a software developer. So I've had to deal with the entrepreneurial end of financial statements and budgeting and all the other finance and accounting related functions of a business. I had a previous company called Squidoo that was a social publishing platform where we paid back half of the money that we made to the people that created content on our platform. I built all the billing and payment systems that we use to pay tens of millions of dollars to our users all over the world. So that sounds very much like a Web3 or crypto problem. And, you know, we would have used crypto except we started the company in 2005 before Bitcoin was invented. Yeah. Little tough. Um, I, I saw, you know, firsthand how difficult this was to pay people electronically to pay people internationally, and I just knew there had to be a better way, but there wasn't at that time. It really stuck with me. And then many years later, after that company was acquired, I discovered crypto. And I realized, you know, Hey, this is that a hundred X improvement that I was looking for in the financial infrastructure. I started thinking, okay, every business, you know, had to get a website, had to get an email address when the internet blew up. And it seems that this is going to blow up the same way. What would it take for them to get a crypto wallet? And I realized that getting a crypto wallet is free, right? You know, any exchange or any, any non custodial wallet is free. But if you start using it, it can become an operational nightmare. And that I saw was the opportunity for Gilded to become the solution for businesses who are operating in crypto. They have back office workflow challenges where those are related to finance or accounting or anything of that nature, and to be able to provide an experience that feels familiar for people coming into the space. Here's the thing, this is a brand new industry. There are very few people that actually have experience working with it. Usually when people come in, their current role in crypto is their first role in crypto. And so, you know, especially when it comes to the back office finance folks who aren't in the necessarily technical crypto part of the organization, in many cases, they now need to go to work without, you know, the tools that they're used to, whether that be accounting software payments software, all those sorts of things. And so that's the opportunity that I saw for Gilded as well as the vision that we're building towards. That's awesome. Yeah, I think, you know, we're seeing with the FTX collapse, the kind of challenges that these major organizations have when dealing with crypto and whether it was by design or not, they didn't have an accounting department. And so it created this organizational nightmare from looking at the books to the point where Now we have John J. Ray III talking about it as if it's bigger than Enron because of all the challenges they had and whether they chose to kind of formulate it that way so they could obscure what was going on or not. But yeah, it's definitely needed and I'm glad that you guys are doing what you're doing in this space. One of the- Sorry, go ahead. One of the things that I think is missing from this space is like an operational playbook or best practices. That takes time because if you own a construction company and you wanna find a new head of finance for your construction company, you can probably find someone who has been a CFO for 20 years of a construction company. You can bring them in, they can bring their experience and best practices to the organization. Now, to some extent, you can do that within crypto as well. Like you can hire someone, you know, whether they're a CPA or someone on the finance team and they can say, look guys, we need budgets, we need financial statements, but there's a whole lot more outside of that that are just things that you might not even know that you don't know. Like, you know, what are all of the wallets that your company uses? A lot of times you have, you know, people on the development team who are using wallets for business purposes that the finance team has no clue about. And there's expenses passing through them. There's all sorts of things happening. Um, but there's no approval process. You know, that's one example. There's plenty of other examples. like, you know, do you have a documented treasury management policy? And these are things that in the old world you don't think about. Yeah, but they're very much a part of day to day life and web. Yeah. And I think to your point about the construction, the example of the construction company, like you could even take someone that's not in that in the same industry, but has familiarity with traditional finance and you can almost put them in a similar role like that. and they could do fine, but with the advent of crypto and blockchains, we have all these additional challenges like you alluded to. And that kind of leads me into my next question for you. One of the terms that I first heard from you actually, I had been, I guess, practicing it a little bit without really knowing I was, but you mentioned the term wallet hygiene. And I just wanted to see kind of like what that term means to you, because I love that term. I love when you started to talk about that and I'd love to hear kind of what that term means to you. Well, crypto is a little bit different from traditional finance for businesses in that, again, it's free to create a crypto wallet. And so you may also find in the old world that going to a bank and setting up a bank account, they may give you a free account, you know, if you hold a certain amount of deposits or something like that. But typically you're not having 10 different bank accounts, you know, for a business. There may be a reason why you have that, but nine out of 10 businesses don't operate that way. But in crypto, you have two scenarios. A lot of times you either have everything running through one wallet. And then other times you have way too many wallets and no best practices, no policies around whether you should create another wallet or who has access to the wallet or anything like that. So you have these two polarizing ends. Sometimes you even have cases where there's business activity that's happening happening in the personal wallet of one of the founders of the company or, you know, someone who was there from the beginning. Why is that the case? A lot of times that's the case because the people who start the company are the ones who are deepest into crypto. And so before they can get the rest of their team on board, they're like, oh, I'll just pay for this expense myself from my wallet and you can just reimbursement. Well, that that's fine, but you still need to be able to track those things. And it would be better if that activity happened from a corporate owned wallet. So when I think about wallet hygiene, I think about whether there is, uh, intent around how wallets are created and used within the organization. There may be, uh, like internal control or policy reasons why you want certain wallets to exist. There may also be accounting reasons because for financial reporting reasons, for example, you may want to set up a specific wallet that's dedicated to revenue from a specific place. So that it's easier to identify that revenue. revenue. That's one of the things that accountants need to kind of understand about this space is that everyone understands the data on a blockchain is public. You can go to Etherscan and look at a specific transaction and see what occurred. You can look at a specific wallet and see all the activity. It's like if your bank statements were public, except it's not for two reasons. One, because we don't necessarily who owns us know who owns a certain wallet. And two, because when we see the list of transactions in our wallet, we can see that on a transaction or card, we can see the amount, but there's no helpful description like on a bank or credit card statement that explains what this was for. And so you can work around that problem by, you know, organizing your wallet in a certain way where you actually understand the flow of funds. And so when you see funds going into a certain place, you have pretty high confidence in what that actually is. And that's kind of a new concept that can be turned in, turned from a huge problem within a web3 organization to a huge opportunity to make the whole back office process a lot easier. Yeah, I think it's interesting when you talk about, you know, the ability to create wallets for free. I mean, that's, it's a great advantage. And like you say, it could be a disadvantage if you do too many, but if you have a documented policy for why and when you're creating a new wallet and you start to look at, okay, we know that everything that's coming out of this is payroll expenses. So it makes it much easier to reconcile things like that at the end of the month. And to your point, it's really nice to be able to look at an Etherscan address and see it formulated like a bank statement, but it's still complicated and seeing you have your only transactions, you have your internal transactions, you have your ERC-20 token transactions. So there still is, like you say, some complexities there that we need to be able to kind of parse through. And I think having good wallet hygiene is an amazing first step for people that are getting into this space. So another question I had for you, because I know you guys work with a lot of accountants and kind of getting them up to speed on best practices. If you had one piece of advice to give a no coin or accountant. So someone who's never held any crypto assets and they're just fresh, getting freshly into the space. What would it be? Very simple, sign up for a Coinbase account or another exchange, put $10 or $50 into that account, learn how to set up a non-custodial wallet, a metamask wallet, learn how to transfer funds from Coinbase to that wallet, learn how to look at those transactions on a block explorer like Etherscan, and then practice calculating your capital gains. And if you do those things, even with a very simple transaction in history, you'll demystify this so much. You may be mystified in the process, but by the end of it, you will be much more clear on what this actually is. And you'll have an idea of what the unknowns are. Whereas I think if you're starting out and you're, let's say, a partner at a CPA firm, And, you know, you would like to start advertising crypto services, but you don't really know anything. It's hard to know whether you can service a specific client or not. And by getting some direct experience, you will have a better appreciation and understanding of, you know, what's, what's going to work for, for you and for your clients. Yeah. I think one other piece I would add to that is just, and then try to do a quick trade on Uniswap or something like that. You know, maybe you want to do it on Polygon, so you don't spend too much on gas, but gas isn't too outrageous right now. But yeah, just so you can see that on chain too, because it's, it's exactly like what you say, the more you get in it and you actually start doing it, it goes from this. One, one of the pieces of advice I give people is to think of it as like a, um, just a regular traditional asset and kind of take out the crypto aspect of it, take out the blockchain aspect of it and think about the context of what's happening. But like you say, if you can follow a transaction from centralized exchange to non-custodial wallet, and then kind of being able to observe that on chain, it definitely makes it less of this kind of unknown, scary topic and makes it more real and, and, um, I guess easy to easy to grasp. Um, yeah, people, uh, should go into this with the mentality of crypto is supposed to be permissionless. You don't really understand what that means until you've been in crypto for a little while. But at a basic level, if you think about not needing permission to go learn about it, right? Like, I think a lot of accountants that I've talked to are like, yeah, I'd love to do more crypto, but I don't have any crypto clients. Well, there's nothing stopping you from trying it out. You know, there's no wall there. You can just do it. Be your first time, be your own first client, you know? Yeah. And so that segues into what else I think is really important to understand, which is, okay, I'm an accountant, I've done my CPs for the last three or four years, you know, learning about blockchain as a distributed ledger and all these things. Why is now, why should I spend my time learning about this now or going after crypto clients now? That's a legitimate question. I mean, I've got an answer for that question. We just ran the numbers on it recently. And based on a Pew research study done in November, 2021, about 16 to 17% of Americans hold or have held crypto assets, digital assets. And so if you kind of just extrapolate on that and assume that maybe half the people file their own returns half the people don't, it's about a $5 billion industry and tax preparation alone. So, I mean, it's a massive industry just from the tax prep side. So when you start to think about these other major companies like Nike doing stuff in the metaverse with NFTs and Porsche doing stuff with NFTs and Starbucks doing a loyalty program on Polygon and all these things, you see the adoption coming and I think it's just a tsunami of stuff that's coming and whether the market's up or down, there's opportunity to be had there. You're gonna need financial reporting whether you're in an up market or a down market. Exactly. And one thing to point out is that the crypto accounting firms that I know, they charge five to 10 times what traditional businesses would be charged for bookkeeping services. So it's more work, but if you kind of decide, hey, I'm gonna go down this path, there's much bigger opportunities. People are willing to pay more because they know it's more work. They know there's no best practices and they know that there is not enough talent out there to where they can get this any cheaper. Yeah, I totally agree. And I think one thing we see often at those CFOs is the industry is moving from a niche to a necessity. And I think that any CPA firm that wants to be relevant five to 10 years in the future, they need to start learning this stuff now. And yeah, on that note, I kind of wanted to ask you, I know that you guys recently launched your accounting partner program, and would you mind telling me a little bit more about that and just where people can find out more? We found that there have been many more accounting firms diving into crypto as of the last three to six months. The reason why is because there's demand. Like I said before, there's a lack of people who have experience with this stuff. There is a growing industry with more and more businesses who need help. And, uh, and so what we're doing is creating a partner program that includes Guilded's, uh, accounting and payment software at, as at the core. But then layers on all kinds of really great things that help you build a practice in crypto accounting. That includes training for your team on how to use the Gila software. It includes templates and resources that you can use to better serve your crypto clients. It includes access to the crypto CFOs community. It includes updates for regulatory changes, our perspective on them, how that might impact you. It includes ideas for ways that you might branch out your practice and to be able to support greater or shifting needs of clients, basically like a window of, of what we're seeing in the industry. And most importantly, it includes like handheld support. So when you get stuck with a problem, um, that you're not sure how to solve, or if you're just not confident and you just want a second opinion on, um, you know, something you're looking at or how something set up, we are there to provide crypto expertise. We like to tell our customers, we're not your accountant, but we understand the accounting practice and we understand crypto really well, and we can act as a sounding board in that way. That gives accounting firms more confidence that they're going to be able to offer services within the industry. So this partner program includes all of those things. Typically, we work with accounting firms that have anywhere from one to a dozen customers with us. If you are interested in learning more about the program, you can visit our website at gilded.finance, navigate to the resources section, and then there's a link for accounting partner program. And on that page, there's a signup form where you can learn more. That's awesome. One other thing I wanted to plug on your behalf as well was the Decentralized Ops Podcast. I know I learned a lot on the NFT launch episode. I didn't realize that you needed to register individually with each marketplace. So that was a really great thing for me to know as well. So I learned a lot from that episode. And if anyone wants to check out that as well, it's build on pretty much any podcast service, right? Yeah, the term decentralized ops is one we're using to refer to not just crypto accounting and finance, but the greater umbrella of all the back office operational strategies that you need to scale successfully in crypto. The podcast is designed to surface all the different aspects of that by interviewing folks who are kind of on the front lines. So the goal there is to uncover best practices or tips or key learnings or even just kind of knowledge sharing experiences about all sorts of different things, whether it's how to pay your employees in crypto to how to prepare for an upcoming NFT drop And everything in between. And yeah, the podcast is on Apple and Spotify. You can also visit deops.transistor.fm, um, to see the episodes. And then lastly, we have a newsletter, um, that goes out weekly, which includes industry news and, um, and kind of, you know, my take on the market as it today and that's available at dops.substack.com. Sweet. We'll have links to that stuff in the video when we post it on YouTube. So that's great. Awesome. Thank you so much for that, Gil, and thanks for joining us today. Appreciate your time. Thanks again, my pleasure. Yeah, take care.