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

Taylor Zork, CPA [00:00:09]:

Okay. Hello and welcome to Niche. To necessity. The Crypto CFO's podcast. Today I have a very special guest me today, Antoine Scalia. He is the founder and CEO of Cryptio. It's an accounting subledger for the Digital Assets base. Welcome, Antoine.

Antoine Scalia [00:00:28]:

Hey, thanks for having me.

Taylor Zork, CPA [00:00:30]:

Yeah, so I'd love to just get a quick overview of what Crypto is and the services that you offer and kind of what inspired you to create an accounting subledger and what sets your product apart from the other solutions that are available on the market.

Antoine Scalia [00:00:49]:

Sure. So we started five years ago, which is, I feel that we were one of the first players in the space. And at the very beginning, the goal was simple. It was to help newly ICO funded companies in automating the accounting process. And at the time when we started, finding a clear answer to that problem was actually a bit difficult. No one, either from the accounting side or from the finance and accounting team side at the client has clear answers on this. So we spent maybe a year, a year and a half trying to understand what is exactly the process that we had to implement to solve that issue. The objective and the thing that we implemented is basically a good data processing, good data processing from data collection to data export to accounting system. So it's really feed data in accounting system in a flexible way, so in a way that both the accounting firm as well as the company flexible enough so that they can map the chart of accounts correctly and so on. So this is how we started. And then the interesting thing is some of these companies became fairly big, fairly large. And so the need went a little bit beyond just pushing data into an accounting system. And actually when I say it went a little bit beyond pushing data to an accounting system, it went from just push data to an accounting system. And we don't really care about the accuracy and completeness of that data. We just want to see data in zero in QuickBooks to, okay, maybe we should care a little bit more about the quality of the data that goes to QuickBooks. And so we started to do more work and more discovery on trying to understand what that means. And we bow down that specific problem to one issue, which is the completeness of the raw data. When I mean raw data, I mean the onchain data. So when we started five years ago, we started with an assumption which is blockchains are public ledgers. The data is easily accessible by everyone. You have tools that are blockchain explorers that gives you that data. And so actually, the raw data collection process is not really part of the problem. And so we only need to focus on the accounting and reporting side and pushing data to QuickBooks. But when we started to care about, focus on the data quality, we realized that actually, this assumption was actually not a good assumption, not a sustainable assumption to make, in a sense that these tools, these chain explorer, were not producing and we're not providing the quality of data that was expected from companies that were scaling fast and from companies that had to prepare audits. There were some missing transactions and there were some features, some features that were basically missing in order to do that job well. And this, I'd say maybe two years ago, two years and a half ago, that started to be really part of our focus. Which is not only we need to automate as much as we can, like all the data processing to QuickBooks and Zero and any other forms of ERP, but we really need to care about the completeness and accuracy of the raw data. And this is also when we started to really focus on building all the data infrastructure ourselves. And so running nodes, building indexers, and eventually build something that you could define as a cross chain ether scan for accounting and audit purposes. And this is, I think that now, this is really what makes us different is this focus on the completeness and accuracy of the data. And especially on the on chain part.

Taylor Zork, CPA [00:05:03]:

I think that's really important and I'm glad you mentioned that, because the fact is that unless you're running these nodes, you don't know that you're capturing all the data. And so when you're running a node, you have all of the data, you're storing all of the data, so you have direct access to that. So I think that rather than relying on a third party, you're providing an additional assurance that the data is complete. Because that's one of the challenges I've had in this space, is feeling confident in the data that I'm working with and seeing that I don't have complete data, but not really understanding where it's missing. And so that's a really key feature that I think is really important to have here. So very cool.

Antoine Scalia [00:05:52]:

Yeah. Because the issue, the thing is that with these public ledgers, it's actually relatively easy to see that you are missing stuff. Like it's relatively easy to see that there are gaps in your data. But when you rely on something like ether scan, it's kind of a black box. So moving from, okay, I have gaps to my data to identify where the discrepancy come from is actually very difficult. It's not like impossible. And so having control over the node, over the indexer gives us the possibility to go back in the data, go back into the indexer, see that we actually missed this specific smart contract activity. Reintegrate this, include this in how the indexer works, fill the gap and then provide complete and accurate data to the client. And there is such a learning curve here in this process because at the very beginning, again, we were using meter scan, then we were using private API. We basically tried all of them and eventually having this black box in this data processing team. It was impossible to solve the problem that we wanted to solve with these black boxes at the middle. And then you can go very deep because when you work with companies actually being audited and being audited by Big Four, it's even not only a problem of completeness and accuracy, it's a problem of these sock reports. Sock one, sock two, what are the internal controls that you have put in place so that you can guarantee that completeness and accuracy and all that stuff? And so all of this is only possible if you're running, if you're controlling the old infrastructure?

Taylor Zork, CPA [00:07:52]:

Yes. Very cool. So the world of digital assets and crypto assets is evolving rapidly, as we know, with new projects and tokens emerging frequently. How does crypto stay up to date with the latest developments and ensure that its clients receive accurate and reliable data? Reliable, reliable data on crypto assets? I know we kind of touched on it just now, but as far as regulatory frameworks and things like that, how do you guys stay on top of things?

Antoine Scalia [00:08:23]:

So for quite a long time and also part of this learning process, at the beginning we tried to stay away of saying that we only a data platform. We want to be as flexible as possible so that any form of company, whatever the jurisdiction, they can come import the chart of account, map the chart of account the way they want. It's not really a role to advise them on how they should do this. And then because every country, every jurisdiction is based on the same double entry accounting rules, we don't really care about the difference, the different treatments and the algorithm that we build that produce these ledger entries will work anyway, whatever the jurisdiction. That was our positioning at the beginning, but it didn't work for a long time because at some point we were working with large companies in the space. One of our strategic clients is Consensus. We're doing all the back office of everything related to Consensus, which includes Metamasks. And now you're starting to work and collaborate with very experienced financial professionals, accounting professionals and tax professionals. And they're expecting from you a little bit more than just like, okay, we are this data platform. We don't care about these regulatory things. So we built, I think it was a year ago, a team that is dedicated to this. So we have a team that is called Accounting Strategy. Strategy that is with folks based in New York and Miami, and their role is to fill that gap. So we have in this team, we have people who are constantly splitting their time between listening challenges in a regulatory perspective that our clients are facing. So, for instance, you will have, I don't know, like a company that have a specific type of NFTs, that produce specific types of revenue that is not really covered by anything. And so they ask me questions, we don't really have the question right away, but what we do is that the other half of the time that these people spend in their day is actually with regulators, accounting partners and Big Four. And so they attend all the fastb meetings for instance, they interact and we have partnerships and relationship with every Big Four in nearly every jurisdiction from obviously in the US. But also in Europe. In the UK. And this team basically goes to constant go between these needs and these new use cases that our clients are facing and these people that are here to basically provide accounting guidance and advice. And this is what we've been doing and what we've been building. And so far it's been great. Therefore we've built this community of both finance professionals, accounting professionals that are working in the companies that we're working with, our accounting partners and these people in Big Four. And we have this community where we organize organizing webinars, we have producing content, and we positioned ourselves not only this data platform that doesn't really care about these different complex accounting questions, but also as a real subject matter expert on everything related to accounting, tax reporting and audit right now.

Taylor Zork, CPA [00:12:03]:

Very cool.

Antoine Scalia [00:12:04]:

Yeah.

Taylor Zork, CPA [00:12:04]:

I know that a few of your team members are joining us with our we have a FASB response coalition within the Crypto CFO community. So we're crafting responses to the 18 questions that FASB had related to digital assets and so we're crafting a whole response. And I know that the Crypto team has been active with us in working on that. So that will be exciting to kind of put forth a response that's well thought out from multiple angles of people that are actively involved in the industry so that these decisions aren't being made in a vacuum by people who only have theoretical knowledge, people that actually have practical knowledge on these digital assets. It's key to have a say in this stuff in order to move things in the right direction.

Antoine Scalia [00:12:50]:

Exactly. And the work that you're doing at Crypto CFO is extremely, extremely important because what we've seen is that everyone needs each other, right? Like the CFOs that we're working with, they need to have guidance from regulators and from accounting partners, but accounting partners and regulators and Big Four, they need to have better exposure of what's actually happening in the field. And so all the initiatives like Cryptocfos that are here to basically bridge that gap is extremely important. If at some point we want to have regulation that actually fits with the reality of the field and yeah, that's super important.

Taylor Zork, CPA [00:13:33]:

Yeah, I mean the challenges that we face in this industry is constantly evolving. No one person can know everything and no one person can have all the answers. And because we have new things coming out all the time, you need to have these meetings of the minds where you can workshop things and think about, hey, from an accounting theory perspective, what makes the most sense here? And how can we move forward and account for things that have no guidance and potentially will not have guidance for another three years? What do we do in the meantime? So very cool. Yeah, I think that it's all extremely important and you guys are helping push that forward as well. So very cool. So what advice would you give finance professionals and businesses to stay compliant with these ever changing kind of regulations?

Antoine Scalia [00:14:22]:

So, I guess, and it's based on what you just said, I think the most important is obviously to be involved in the right groups. And so cryptocfos is a good starting point and also because there is a lot of person to t and a lot of things that are not regulated and there are lots of things that won't be regulated in the near future. And maybe something that will never be regulated is to have a pretty consistent approach in how they treat different things and document, I think, documenting decisions, implementing internal controls and then documenting decisions, having proper accounting guidance. And even if you are like early stage business, even if you're not audited, having these accounting guidance on paper, that is something that is being built not just on one side with one guy in the company. That is putting a Word document with, putting some accounting guidance, but have something that is actually like a collaborative work between the company, between the accounting part, between the accounting firm and between some other subject matter expert and sub ledger. That they're using, I think is extremely important because moving forward, the risk that you can run, especially when you're starting to be audited, is actually more like having if you haven't done anything regarding documenting the choice that you made and documenting accounting guidance, the risk that you will run here will be bigger than if you made some bad choices. If these choices are documented with the right context you're running, I feel like, less risk than if you haven't done anything. So documenting, I think, is the most important thing that you should do.

Taylor Zork, CPA [00:16:21]:

Absolutely, I agree with that. I think that because we're in an emerging industry, a lot of times people are just in growth mode and they don't necessarily think of the accounting piece in a large part because it's so complicated and it's almost overwhelming. Right. So I think that one of the pieces of advice I give people is to kind of demystify things by taking away the aspect of crypto assets, right. Pretend like it's just a transaction in TradFi and then kind of put that framework to act with that framework in mind, where you're utilizing TradFi examples to frame these crypto asset transactions and yeah, exactly. Document what you're doing. Because ultimately, if you document what you've done and your justification for doing so we're in a vacuum with no regulatory guidance or limited regulatory guidance. So as long as we have something that we've justified on paper and in writing, and we've had a consistent viewpoint on how we're treating that transaction type for well documented, I think that that's going to keep you protected, at least from any kind of negative repercussions as long as it all has some sort of logic to it. Right.

Antoine Scalia [00:17:42]:

Yeah. And in that perspective, also working with the right accounting firm, like the accounting firm that has knowledge on this, that has experience dealing with other clients, specifically with other clients that are kind of in the same space or have kind of the same use cases that you have is also very important because we've seen actually less and less for good companies, but we've seen really a lot of clients and companies in the space working with accounting. Firms for which it was like the only crypto client. They were not willing to invest any form of time on trying to educate themselves on the regulatory side. And eventually all that part is on the company side. And as you say, because you can't really blame them, they really focus on growth and just like getting shit done and not necessarily getting shit done well, this documentation thing is really something that obviously they won't do and they will skip. If they had picked the right accounting partner, that would be something that would have been pushed by the accounting partner from day one. So picking the right partner is actually a very important thing also.

Taylor Zork, CPA [00:18:55]:

Yeah, it's tough because thinking about the accounting side of things isn't always the sexiest thing you want to be thinking about in the early stages. But I told this when I was more involved with the cannabis space on exit or in lots of different parts of your business's cycle, having solid accounting is going to provide additional value not only on a valuation standpoint, because investors want to see solid financials. They want to see solid documentation because that shows them that the risk that they're taking on is at least mitigated to some degree by clean accounting. And I think that it's true pairing with the right partners from an early stage, while it's not always the sexiest thing when you're a startup founder, it's hard to overstate the importance of it. And I think that you're right on with that. Very cool.

Antoine Scalia [00:19:47]:

Yeah.

Taylor Zork, CPA [00:19:47]:

So, kind of on the same train of thought, can you share some insights on the importance of collaboration between traditional finance professionals and those in the digital asset space? How can these two worlds learn from each other and work together to drive growth and innovation in the industry?

Antoine Scalia [00:20:05]:

Yeah, so I think in the same way that everyone needs each other, like the crypto CFO will need the feedback of regulators and accounting firm. It's the same thing also for companies like us and these accounting partners, the expertise that we bring is technical expertise, right? So obviously we're building also the subject matter expertise. But the core expertise that we're building is on the technical side. And I think for us, most of the work that we're doing with these accounting partners is to educate them or to discuss about these different technical things that should have in mind, because the technical aspect of things also gives a good sort of context and framework of what's possible and what's not possible. So give you an example. If you have a client that is deeply involved in DFI, you should know that retrieving data from DFI activity for various reasons is actually a bit more challenging than retrieving data for just a regular, I don't know, like crypto payment activity to take something very simple. And so here there are some things that you're able to do and something that you're not able to do in an accounting perspective. And so it's important for us to come to these partners and educate them on what's possible and what's not possible and also trying to understand on our side what are the things that that have to be like the things that needs to be done in order to do sort of the minimal viable accounting work in order for us to prioritize the roadmap. So I think this is something that we spent a lot of time on. Also educate these accounting partners on what's possible and what's not possible. But also every crypto sub ledger or every technology provider also builds their platform with some specific use cases in mind, specific players, specific clients in mind. And so therefore the platform will work specifically well for certain types of use case and will work a little bit less well with other use cases. For instance, we have very big focus on complex on chain activity and we're very good at this. But if your clients is involved in trading derivatives on 15 different platforms, crypto won't be a good fit. So we're doing a lot of work like this with these partners.

Taylor Zork, CPA [00:22:59]:

Yeah, I love it. I think that it's slightly kind of in the same vein. But when I talk to people about educating themselves on the industry, one of the things I have them focus on is the best way to get educated on the industry is to perform some of these tasks on chain so you can start to see what is possible and what's not possible and how to follow the data on chain as well. So I think that having some skin in the game, it doesn't have to be a large sum of money because if you're operating on a layer two, like if you're on polygon or if you're on finance smart chain, for example, you can transact for pennies. And you can see how interacting with these different D five protocols looks on chain, on these different BSc scan or polygon scan to be able to kind of follow that money and see what is possible and what is easily viewable or what gets convoluted when interacting with these different smart contracts. So I think those are really good points and I think that that's very interesting. And to your point, in the growth cycle of these different sub ledgers, you are obviously influenced by the clients that you're serving. So you go in different directions and you grow in different ways. So that's one of the reasons why you do see a few different options in the space for different sub ledgers, because the space encompasses too much to be able to cover everything in one tool. Though I do feel you guys do a very good job of performing that. But yeah, very cool. So, looking ahead, where do you see the future of crypto accounting and the broader digital assets industry heading? Are there any emerging trends or technology that you're particularly excited about and believe will have a significant impact on the way businesses manage their crypto assets?

Antoine Scalia [00:24:50]:

Yeah, so I think looking at the crypto accounting space, for me, I think at some point there will be two markets. There will be two markets with different assets of needs. There will be the market of early stage startups that as I mentioned at the beginning, are more focused on getting shit done and having sort of good enough solution. On the accounting side, they can do more like payments, like account receivables and payable and have a sort of all in one financial management platform and accounting being one of the features of this platform. That would be one market and the other market would be for more complex use cases, having proper data platform focused on solving complex accounting, tax reporting and audit readiness use cases. And I think that there are really two markets because the way you approach, especially the accounting piece and the audit readiness piece in a technical perspective, in a back end perspective, is very different in these two markets. Like you coming back to what I mentioned earlier around having full control of the data and the indexing and all that stuff, this really resonates in specific part of the market, right? If you're an early stage company, you just raise 1 million and the only thing that you care about is not having your accountant that calls you every five minutes to understand what is this and what is that. The problem that you want to solve is getting the shit done. And this is one problem among other problems that are how can I pay freelancers and I don't know, take care of account payable and all that. And so you will look for kind of all in one solution with invoicing capabilities and that type of stuff. And this is so as you understood, this is not really sort of the route that we're taking. We're more taking for the complex data play and less for this horizontal all in one platform, platform play. But the reality is that also, if you're looking at the accounting piece of these all in one platform play here, the level of complexity would be fairly limited. And what will happen here will be easily sort of commoditized and could be copied fairly easily from one platform to the other. That's the way I see the market going in the future.

Taylor Zork, CPA [00:27:37]:

Very nice. Well super interesting conversation. Thank you so much for your time. Antwan really excited to be working with you. And yeah. Thank you for joining me. Pleasure.

Antoine Scalia [00:27:49]:

Thank you very much. Shella was good. Thank you very much. All right. You our channel.