Samuel Leichman on the Statement of Digital Assets

[00:00:00] Umar: Welcome to The Accountant Quits brought to you by the Web3CFO Club, a community by Request Finance. With a curated community of web3 CFOs from companies like Aave, The Sandbox, Binance, Consensys, Ledger, and many more, joining this club will allow you to network and learn best practices on web3 financial operations.

[00:00:24] Umar: On The Accountant Quits podcast, we discuss how blockchain will impact the accounting professions and how accountants should prepare themselves for the future of work. My name is Umar, your host, and even if some might refer to me as the accountant gone rogue, my job is to provide you with the blockchain knowledge that you need that will be relevant for the accounting industry as a whole.

[00:00:47] Umar: Welcome to Episode 65. Blockchain technology is open source, right? But to advance the development of accounting standards for digital assets, we need accounting bodies to be more open for collaboration in these changing times. This revolution cannot take place in an ivory tower. 

[00:01:07] Umar: A group of accountants at Propeller Industries have answered the call and are pioneering a new reporting methodology for digital assets through the Statement of Digital Assets or short for SoDA. SoDA is a standardized reporting methodology that bridges generally accepted accounting principles with on chain holdings. By providing a transparent lens through which to view digital assets, SoDA demystifies the often opaque GAAP balance sheets, offering stakeholders a clear picture of a firm's liquidity and digital asset holdings.

[00:01:43] Umar: And leading this initiative and with us today is Sam Leichman, the leader for the blockchain practice area at Propeller Industries. Propeller provides a full stack CFO and accounting outsourced services to VC backed startups. And Sam and his team focus on translating on chain activity to actionable GAAP financials and providing clients with a full liquidity picture of their crypto holdings.

[00:02:11] Umar: Currently, they work with over 50 web3 clients, including Optimism, cLabs, Figment, POAP, and VeeFriends. 

[00:02:20] Umar: In this episode today, you will learn what's a statement of digital assets and why we need one, the proposition of SoDA to improve transparency of wallets and digital assets held, how SoDA complements and improves the current FASB ASU for digital assets, how sub ledgers intend to incorporate SoDA reports into their platform, other use cases for SoDA and much more.

[00:02:47] Umar: Sam, welcome and thanks for taking the time to be here. 

[00:02:51] Sam: Of course, Umar. Good morning, and thank you for having me. 

[00:02:54] Umar: To start, can you share a bit about your background, how you first became interested with blockchain, and how you eventually became the blockchain practice lead at Propeller? 

[00:03:04] Sam: Of course, I think as with everybody who is working in the space today, they're There is no clear path of, I woke up in college and wanted to do this.

[00:03:13] Sam: So I take that back. There are people much younger than I, who have been able to be lucky enough to make that career path decision. But I started my career in investment banking. Did some public company FP&A work, ended up jumping into the startup world. And after a six year slug, my wife gave me the career guidance that I should get a job as a regular paycheck and health benefits.

[00:03:38] Sam: So I started working at Propeller Industries about, about six years ago now. And Propeller was founded about 16 years ago, really with the intent, as you noted, to provide venture backed startups with a full stack CFO, down to staff accounting solution. The idea is you've got founding teams who are, have raised their seed or series A, and their focus needs to be on building, selling, and scaling, not having a perfect instance of QuickBooks.

[00:04:06] Sam: And while it's great to have a CFO around, there's just not 40 hours a week of CFO time, definitely not at seed or A, and sometimes not even at a series B level. And so we came up or our founders came up with this, this fractional model and initially focused on CPG and SaaS based startups. When I joined, I started with our SaaS practice and about six months in, I was handed a new client that just entered the firm called Solana Labs.

[00:04:37] Sam: And they were in testnet at the time. And our resourcing manager came in for a resource meeting. So we've got a new client. They do Bitcoin, blockchain, crypto. I've got no idea what they do, who wants it. I was the guy who raised his hand and very quickly, and they were still in testnet, but, you know, understanding what they were developing and where they were going, realized that in addition to the finance and accounting work we're doing for all of our other clients, there was going to be this second layer of crypto finance and crypto accounting processes that at that time really just didn't exist.

[00:05:11] Sam: And, you know, that was definitely sort of my, fall down the rabbit hole moment and, you know, started really thinking about, I mean, I'm, I'm a little bit probably older than a lot of people on this podcast. And I remember when web1 was really beginning to blow up and, you know, seeing the potential for what the internet could be when I was working in my first banking job and knowing that I totally missed that boat.

[00:05:36] Sam: I kind of realized that this was another. I think, you know, really, I'd say, I don't want to say world changing, but a seismic shift in the way that people will be computing and just interacting with information. And anyway, I, I quickly kind of began consuming everything I could. And I was also, there's a funny story too, was very, very lucky.

[00:06:02] Sam: I live in Sausalito, California, and was taking the ferry in every day to work and was on the 710, every morning. And there was about a half a dozen guys and women who would have their coffee together, known by their first name. Very pleasant way to start the day. Once we got into COVID, I realized that one of my friends from the ferry happened to be Rob Massey, who founded the crypto practice at Deloitte.

[00:06:25] Sam: And so, you know, in addition to being working on this incredible tentpole of a piece of the industry. Solana, it wasn't it back then. I was also exposed to, you know, really, you know, industry leaders from an accounting perspective. And I think one of the things that is amazing about this, this field, and maybe it's because we're still nation is that, you know, everybody remembers where they were when they started.

[00:06:50] Sam: They remembered not knowing anything about this. And I was really blessed with a friendship with Rob, who was beyond generous with his time and allowed me to really lean in and have a degree of confidence that this is a thing, this is going to be important. And, you know, the work that we began doing, you know, back in 2019 and 2020, really had this incredible promise to support, you know, a field in which a lot of money was getting invested.

[00:07:18] Sam: A lot of very smart people were really deciding that that's where they wanted to spend their time. And, you know, the, again, I thought this was web1 coming all over again. And we've seen, as with web1 and, you know, the rise and falls of the web vans and other names that nobody probably remembers, you know, there's ups and downs, but it's, it's been a terrific ride at Propeller right now.

[00:07:39] Sam: We're working with about 50 projects, some that you know of that Umar mentioned, a bunch of others you haven't, but, you know, it's really, and I think the demystifying the process of taking on chain activity and bringing it to QBO, the income statement, the balance sheet. And, you know, I think that I think any accountant on this podcast is realizing that I've just so oversimplified what we do.

[00:08:06] Sam: But, you know, in a nutshell, I think, you know, that's sort of the nuts and bolts of it. And the benefits that the founding teams that we work with have ultimately is. Number one, they don't go to jail because they know the taxes they need to pay. 

[00:08:20] Sam: Number two, they know how much gas is in the tank and they know when they're going to run out of money. Having digital assets further complicates that. 

[00:08:28] Sam: And number three, when it's time to go out for their next fundraising round, their books are in good shape. And they can say that, you know, even with the complexities of digital assets impacting the income statement, having crypto and on the balance sheet, they are in a position to, you know, sell themselves to raise more money. And right now, as I mentioned, working with about 50 projects, we've got about a dozen dedicated finance and accounting folks who are in the United States who are all full time working on these projects. And yeah, it's been a blast.

[00:09:01] Sam: And again, just grateful that, we're in an environment and a profession, crypto accounting, where there's, I think, a true ethos of, people who just want to make sure that, everybody does good. And we're all winning when knowledge is shared. 

[00:09:18] Umar: That's right. Now, Sam, before we go through SoDA, I want to briefly touch on the state of digital assets reporting.

[00:09:26] Umar: So 2023 has been quite eventful for crypto accounting under US GAAP. As FASB released this update for digital assets where instead of the limiting costless impairment accounting model, digital assets can now be accounted under the fair value model. So the update has seen improved guidance on the disclosure requirement.

[00:09:47] Umar: So now a company having digital assets must report the name, cost basis, fair value, and the number of units held in their disclosures. And it must do so for only their significant crypto asset holdings. However, the new guidance also does not cover all digital assets. For example, NFTs and wrapped assets are excluded.

[00:10:11] Umar: Now, I understand SoDA was published in September 2023 before the finalization of this ASU from the FASB in December 2023. So, I want to ask you how satisfied are you in terms of the gap that was there previously that has now been filled? 

[00:10:29] Sam: So I think it's a step in the right direction. I don't think anybody listening to this podcast, you know, if you put them on the spot and said, what's the solution, for the, indefinite lived intangible asset methodology of reporting on the balance sheet.

[00:10:45] Sam: There is no easy answer. I think all we have is steps in the right direction. And I think the ASU is just that. To be honest, I think that, you know, much like other things in life, it's going to get, it's going to maybe be a little bit more painful before it gets better. But, I think the fact that, FASB took on this very hard question, there was a bunch of exclusions that, I think had to be made for a bunch of reasons and understand it.

[00:11:13] Sam: But, you know, I think what the result is now we see, reporting on the chart of accounts, we spent a lot of time at Propeller talking about this, cause you got before it was, I'd say, super messy and you knew that the, your entry on the balance sheet for digital assets. Number one, didn't tell you what you really owned and no sense of your real liquidity, no sense of what was actually in that, in that line item.

[00:11:39] Sam: And if a balance sheet is meant to show what you own your assets, what you owe in your liabilities and what's been invested in you, your balance sheet just doesn't tell the story. It didn't tell it then. To be honest, it continues not to tell it because now when we think about a chart of accounts, we think about you have this opportunity to disclose certain digital assets at fair value, and that does not include native tokens, as you mentioned, NFTs, wrapped tokens.

[00:12:08] Sam: So, what we are facing with our clients right now, and maybe this is also from an operational lens, instead of a single line item, which didn't make a whole lot of sense before, we are now in a world in which we are actually listing out three distinct digital asset categories on the balance sheet. That have very different properties.

[00:12:29] Sam: You will continue to have a lower of cost from impaired value, which can be your, a native token, which could be worth billions of dollars, but it's not going to show it on the balance sheet. You'll have your fair value reporting, which it can be your ETH, BTC, really your L1 tokens. 

[00:12:49] Sam: And I also, I think our clients are building on web3 and yes, there are the, that presence, but for the most part, there's not a lot of just buy and hold an L1. So, you know, that's actually not that impactful for a lot of our clients, but it's there. 

[00:13:06] Sam: And then finally, I think this is a, probably a subject for another podcast, but you got stable coins that. I guess there's, I think, hopefully with legislation, we're able to put that into cash and cash equivalents, but, you know, depending who you ask, that's not where it belongs. So, you know, in theory, you're, you're now listing out three distinct digital asset categories, which have different valuation techniques, different hidden tax liabilities associated with them.

[00:13:35] Sam: And, and really, you know, when we think about stable coins, no, it doesn't belong in cash, but when we think about from a forecasting perspective, we want that broken out because we want to think about what is the runway of our clients. And so again, I think it is going back to your question on, the impact of the FASB ASU, 

[00:13:54] Sam: It's in a way of forcing mechanism to really maybe get a little bit more granular with what you're what you're putting on the balance sheet. And, you know, it's definitely requiring more thought. And, unfortunately, I think we're still not there. And I think a lot of companies are still going to have a fair number of their digital assets still in that lower of cost or impaired value bucket. And to be honest, I don't know how you think about marking to market a native token that could be in the billions that has a very thin float. Anyway, this is a, there's a lot of people at FASB who are a lot smarter than me about accounting.

[00:14:31] Sam: So I'm not going to be trying to solve that today, but I think it's a step in the right direction, but it is, it has not pulled the complexity back in terms of, I think our jobs as crypto accountants and crypto finance practitioners. 

[00:14:44] Umar: Now for the listeners, if you want to get a copy of the statement of digital assets or SoDA white paper, you should head over to sodafinance.xyz.

[00:14:54] Umar: So sodafinance.xyz. Now reading in from the white paper, SoDA was born. So I'm reading this extract from the white paper. It says SoDA was born as traditional GAAP reporting does not sufficiently detail the conditions, exposures, and or holdings to more fully derive the full liquidity picture of the digital assets held by an organization.

[00:15:16] Umar: Now, can you take us a little bit back in time, Sam? And because I understand it's not only so the team at Propeller who have co-authored this white paper. So how did you rally a group of accountants to come together? And share this vision on SoDA. 

[00:15:32] Sam: Absolutely. And also, so yeah, our first version, which we let's say that we dropped it at mainnet, dropping a 40 page accounting white papers, not exactly the newsworthy story that one would hope, but we shared it for the first time in September. We are currently in the process of actually, we have it revamped for final draft mode. And we've got a V2, which incorporates the ASU and those implications into a new version. We're hoping to have it released in probably about a month.

[00:16:02] Sam: So anyway, but as Umar mentioned, the first version is available, sodafinance.xyz. So we were working on, this is early days of Propeller, crypto again. I think everybody's got a similar story where, you know, what was their first exposure to crypto accounting? And it was horrible Excel models and horrible Google sheets that, you think you're too clever by half because you've got a pricing mechanism and all the stuff that's like, Oh, well, we can just spin this up and we'll get all the transactions priced.

[00:16:36] Sam: And, it was, we, we know it was going to be wrong, but it was just how wrong it was. And it makes my shoulders tingle about what we did in the early days. But we ended up working or taking on a new client that was a L2, not going to name names, but, we, early signed them up and, realized very quickly that our clever models were just not going to work when you're talking about, 3 to 5 million transactions a month that have to get priced and, and tracked, and this was early days of sub ledgers.

[00:17:07] Sam: And I know we'll talk, touch on that in a little bit, but we found one of the early leaders and really dug in and created the reporting that we needed. And it was, you know, that was a mad sprint getting the system right. And it came to, I think the first real close we had with them after they left to testnet and they were in mainnet we were, I think getting pretty good at tracking revenue.

[00:17:30] Sam: And then we were going through the balance sheet and I was looking at what we were about to report to our counterpart, who was running finance and ops, and we did a weekly ad hoc report for them, which just looked at what was their total value of digital assets and cash. And just so they knew what their liquidity was, and I looked at the number that we had, and I'm going to make this up, but we were listing out 3 million of digital assets on the balance sheet.

[00:17:56] Sam: And I'm like, That's not right. I know that we, every week we talk about 15 million dollars of value of fill in the blank of a digital asset. And, my accounting manager who's a controller sat me down and walked me through the reconciliation of the sub ledger, and number was right from a GAAP perspective, but it made no sense.

[00:18:17] Sam: And I'm like, we're going to have a close and this is going to be where we're going to spend half of our conversation. Cause they're going to have the same conversation I did. And sure enough, that's what happened. And so it was like, all right, well, you know, GAAP was, was not really doing the job to tell the full liquidity picture of this client.

[00:18:37] Sam: And so for our next close, I was like, well, okay, how do I make it clear that we can show what is actually in the GAAP entry that's on the balance sheet? And it really started out by saying, okay, the way we look at it every week is we've got wallets and assets and quantity and fair value. And here's going to be another column that's going to just say, here's the number.

[00:19:03] Sam: And once we add them all up, this is what's on the balance sheet. And it's just going to allow us to do our job in terms of reporting better. It says, here's an easy proof. And it was like, it just made sense to do. And then I think from there, yeah, I try to think about, what did the finance team who's working on Salesforce back in 2001 or 2002, who needed to begin to standardize this new SaaS model, how did they start thinking about some standardized, non GAAP metrics?

[00:19:34] Sam: This isn't really a metric driven tool, but it is a way that says, okay, well, you know, at the time, I think we had about a dozen crypto clients and it was like, all right, well, let's just deploy this and it just, we did it because it seemed to make the most sense. And I'd say about, maybe it was about a year and a half ago now, I think for a period, we thought we were really clever and this was just, totally proprietary model.

[00:19:55] Sam: And fact is that probably everybody on this call was probably doing something similar or, if we all had to lock ourselves into separate rooms and say, come up with something that rationalizes your GAAP reporting and bridges out to the balance sheet, you're going to come up with something that, kind of looks pretty similar to this and so the decision was made to, really, create sort of a, an open source best practice for the industry.

[00:20:18] Sam: You know, we were doing work with auditors, tax professionals and VCs and we also started realizing that, there were applications to this, this tool, this reporting mechanism that extended far beyond just operational accounting. And that's really when we started thinking about, okay, let's create a public benefit collaboration to actually get people involved.

[00:20:40] Sam: We're going to talk about what we're doing. We're going to open source. This is a, a best practice. And then on top of that, let's, let's bring our friends in. We don't have the policy committees for some of our contributors have not officially signed off on them, attaching their name, but we had a tier one VC, a tier one Big4 partner and a top tier Head of Finance from the industry who all contributed.

[00:21:06] Sam: And I mean, you can look at, we dropped our, this V1 at Mainnet in September. You can look online, on stage with me was, Em Westerhold from Andreessen, David Byrd from EY, and Palash Agarwal from OP, and I'll let you figure out who might have been involved with the V1, but it was very much a I think in the spirit of the industry and in the ethos of the industry, yes, we can pretend that we've got something, really proprietary, but we don't.

[00:21:38] Sam: And I think, there's an opportunity for us all to, put our heads together and say, let's just create, the, best standard that we can, we can all agree on. And so, we were always thinking that like, you never quite get everything done to the degree that you want.

[00:21:54] Sam: And when we had the ASU drop, obviously it changed a bunch of things within our original white paper, but it also gave us an opportunity to say well, let's, widen the tent and let's bring some other professionals. Again, this is in the works and nobody is, we don't have full attribution approval yet, but let's, let's get other folks involved.

[00:22:15] Sam: And I think, and we'll get to this, I think, later in the conversation. There's even a bigger opportunity I think for everybody on this call and I'll have an ask in, in a moment or two, but yeah, I think us as an industry have some incredible opportunity to collaborate and to really set our best practices in line.

[00:22:37] Sam: We, we have a story in white paper that it wasn't until I believe it was 1987 or 1988 that the statement of cash flows became a requisite in financial reporting, and that came about not totally due to the savings and loan crisis of the eighties, but, you know, some fast and loose accounting practices that were going on and, the industry realized that, an income statement, a balance sheet, and what was serving as kind of a bridge between periods was not doing the job.

[00:23:09] Sam: So, I think I've, again, I'm not looking to go and make my next step here to try to change, or make FASB rules. But I think that us working in this space can all benefit from something. But quite frankly, I think we're all doing in some way, shape or form. So anyway, sorry, I probably went on a bit long on that one.

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[00:25:12] Umar: Now when you say the white paper is open source, let's say there are people listening to this episode right now who they want to contribute to the white paper.

[00:25:21] Umar: They want to leave a positive mark on the accounting industry as a whole. So how should they actually, how can they start contributing and is there, let's say like a governance group at Propeller who would be reviewing some of these proposed additions and that is subsequently ratified to be added to the white paper, how does the process work?

[00:25:43] Sam: So number one, I want to be clear. This is industry collaboration. My name is I think we designated it for, Project Director, but this is not a Propeller project. This is a project that I spun up while at Propeller. It's based on a best practice that we developed at Propeller. But it really, the goal is to make this a tool for the industry.

[00:26:07] Sam: And I can also get into how we're interacting right now with subledgers as well in terms of that adoption. But getting back to your question, one of the things we are, working on that we'd like to see if we're calling the new version that's coming out in a month or so, V2, one of the things that I want to do is once that is out, create a mechanism where we have an endorsement period, possibly it's over the summer into September, we're still working out some of that, but everybody on this call can take a look at this.

[00:26:43] Sam: And this isn't a, it has to be exactly this way. I think that, as with most things in digital assets, there's different, everything's just a little bit different. So, I think this is a guideline and not a, if you don't do it exactly this way, you can't consider the SoDA.

[00:26:58] Sam: But, I think what the next step is, I am going to be looking out to your audience, to the community and say, we have an endorsement period. Go to our website and it's not ready yet, but put your name, put your title and say, this is a best practice that I plan to adopt that I think is good for the industry.

[00:27:15] Sam: I also think that, there is going to be probably, there's always room for improvement. There is always going to be changes in accounting as it pertains to crypto. And so there will be evolutions and, in terms of a governance structure, this is something we've talked about and how does this thing live?

[00:27:33] Sam: And, I think there's a lot of discussion opportunity there. We haven't landed on anything, but, this is not a small group making the decisions, I think, one of my, I'd say goals for this is create this best practice, open it up to the wild and, let's do what makes sense.

[00:27:48] Sam: I think there is a natural extension to what we're doing here that is I think going back for a second to the FASB ASU, you know, first of all, the reporting cadence is not monthly, there is a provision for a roll forward, which I think is fantastic, but it's a, again, it's not a really an operational tool. 

[00:28:11] Sam: But one of the things that we're excited to be thinking about is when we close the books for our clients, we want to be delivering a month to month rollover from, just from a token perspective, exactly what you, the way you described it, but what is the change, again, from a wallet asset pair principle. How do you tell the story from one period to another? And, I think with any balance sheet, if you don't have some sort of detail and what happened in between, the balance sheet is good, but it really doesn't tell the full story.

[00:28:42] Sam: So I think there's a lot of directions that we can go. And, um, Yeah, I think as we get done with our, our second version and where you really, open this up for endorsement and clap, I think the next step is collaboration. And yeah, I'm sure there's, probably some joke in there about, how many accountants does it take to screw in a light bulb?

[00:29:00] Sam: But, I welcome any and all who want to kind of be a part of this and, again, this, this is really meant to be a, an opportunity for, practitioners to create a tool that will be working very efficiently for them. 

[00:29:16] Umar: And of course you can count on my support to try and rally as many accountants as possible to help comment on SoDA v2.

[00:29:24] Umar: Now you mentioned subledger. We'll speak about subledger in a bit, but first I want the listeners to further understand the value proposition of SoDA by dissecting some of the disclosure. So we can go through V1 or you can tease some of the content from V2. But so like we mentioned before, or like you mentioned, SoDA's first order is to provide clarity on the digital assets full liquidity picture.

[00:29:53] Umar: This analysis in the white paper is broken down into three areas. The entity's wallets, the assets in those wallets, and the roles of those wallets. So on page 12 of SoDA, and again, the listeners, you can find a copy of the white paper at sodafinance.xyz, you've illustrated an example of this disclosure.

[00:30:15] Umar: At first glance, when I saw it, I thought that was a lot to disclose. But I want to ask you, so why the team at Propeller or rather the co authors of the white paper so far thought it was important to disclose the wallets and the rules of these wallets? 

[00:30:33] Sam: I think maybe to really get to part of the question you're asking, it's almost, I think one, we should probably talk about kind of who we built this out for initially.

[00:30:44] Sam: And it was very much an operational accounting, operational finance perspective. We, you know, our role at Propeller is essentially outsourced CFO, Finance Director, Controller. And when we're talking with internal operators, they need this detail. They need to understand what's in their wallets. They need to understand, where's the kind of hidden tax liability, if they're sitting on a billion dollars of a native token at a zero cost basis, they don't have a billion dollars for a bunch of reasons.

[00:31:17] Sam: It's, what is the liquidity discount? What is the, the tax implications? So it really, I think at its most full level, it really is meant to, tell the complete picture of, what's in your wallets and how does that relate to the balance sheet? I think you touched on also, two good points of, if you're a public company, do you want to be sharing all of this, if you're looking to raise money. Do you want to share all these details in all of your wallets within, perspective investors? No, you don't. But I think when you start thinking about having, roles, which is what, what is that wallet used for? Obviously asset type, ETH, native token. You're now able to actually do roll ups where you can actually, begin talking about your digital assets in their aggregate and, or in their particular roles are these wallets meant for operational and admin?

[00:32:13] Sam: Is this a revenue wallet that is, capturing inbound, whatever your business is filling in digital assets. So it really, I think it's at its most complete form in terms of the description in the white paper. However, I think once you have all of these data points and fields, you can then begin to say, okay, well, I don't want to disclose, how I'm even thinking about all of my different wallets.

[00:32:38] Sam: Maybe I just want to say, I've got this amount of ETH, this amount of native token, and so on. And then, but by having all of that detail, you can do those roll ups and provide a summary view. Do you provide your full chart of accounts when you're putting your financials together for a pitch check, no, you want to have your revenue.

[00:32:57] Sam: You want to have your key expense buckets and you want to have the sum. And that's, I mean, that's what people are going to want to see at the right level. And that's, by having different ways to do, to roll up the data, it allows for, I'd say more, a more high level disclosure. 

[00:33:15] Umar: I understand. So this was the takeaway I wanted the listeners to also have. So SoDA right now is it's a proposal for management reporting and less for the annual financial statements. 

[00:33:30] Sam: Um, yes and no. I think that, we've had, venture significant venture capital firms make SoDA a part of their reporting. I think we want to touch on use cases, but, I think that it starts with, I mean, it starts with the accountant who needs to get the numbers, right.

[00:33:51] Sam: Who, who then is talking with their CFO. Who needs to really understand what's behind the numbers so they can make strategic decisions. But then that CFO is dealing with a whole bunch of other constituents. And that could be auditors, could be tax preparers. It could be investors who are coming in who might, might have invested or might be thinking about investing.

[00:34:13] Sam: And so, the applications for SoDA are wide ranging. And so I think that at the highest level or the most detailed level, I should say, it is for the operator, but you've got the ability to summarize it and, still have your backup and you can, make your operational decisions from as well.

[00:34:34] Umar: I understand. 

[00:34:35] Sam: And, one other application, sorry, that's slipped my mind is also we deal with clients that are going for their money transmission licenses and other regulatory hurdles, especially, I think with this changing the shifting rules within our industry that do require disclosures.

[00:34:53] Sam: And so again, not to totally give your entire wallet infrastructure away with your holdings and your cost basis and everything else. But, being able to start with that, you're, you're empowered as the accountant, as a finance professional to then parse that out and to determine what is the appropriate amount of information you want to share with your, other business constituents that may be out there.

[00:35:19] Umar: Now we've had a few of the sub ledgers on this podcast, so listeners will be familiar to them. Now when it comes to tools for crypto accounting, it is one tool that I always advise or recommend accountants to use is a subledger. Now, I want to ask you, because you've mentioned, you've been actually working with some of the subledgers out there to implement SoDA as a template.

[00:35:45] Umar: So it would be an additional report that would be available in the subledger. Could you share a little bit more maybe on how, let's say, the SoDA report will be available in these subledges? 

[00:35:56] Sam: You know, I have gotten verbal commitments that in conjunction with our v2 launch, we will have a SoDA report in I'd say every major sub-ledger has said, yes, this makes sense.

[00:36:09] Sam: And again, taking maybe a step back for a second, the data that we're talking about here exists within all these systems or better. Otherwise, they don't really have a very good system because you need all this stuff to just get your books closed. But yeah, look again, and I think this goes in part to the, I'd say project agnostic efforts that we're pushing forward.

[00:36:31] Sam: This isn't SoDA by Propeller. There's no SoDA with a copyright. And then we're going to spin this up and, have some way to monetize this down the road. The conversations that I've had with, and again, you can fill in, the top five sub-ledgers that are out there is look, you know, there are canned reports in all of these, there's, your tax basis, there's your current balance.

[00:36:52] Sam: Some of these are actually very close to having all of the data points in one report as SoDA. I just want to see you go to your drop down menu for reports and you've got a SoDA report. And I want that to be the standard. I don't I think that again, creating that. I mean, ultimately, you know, our our sub ledger partners at Propeller, we work across the aisle, you know, we can't do our job if we don't have a sub ledger doing the work of, tracking the on chain activity and helping us get to, the correct journal entries.

[00:37:24] Sam: It just doesn't work. And, it's funny, I was on a prospective client pitch with a very technical team a year or two ago, and we're sharing what we did as accountants and finance professionals and it's like, oh, and we're going to have to spin up a subledger for you. And like, what does it do?

[00:37:42] Sam: So, oh, well it takes your on chain activity and it gives us the journal entries for the income statement, the balance sheet, they're like, Well, if it does all that, why do we need you guys and I'm, I hope there's a collective sort of shuckle in the audience because it doesn't work like that, obviously, but yeah, no, but I mean, it is absolutely a very important piece of the puzzle.

[00:38:04] Sam: And I think the partnership with the sub ledgers is really also meant to make it really easy for, you know, the folks on this, on this call. And, when I started really falling down the rabbit hole, I was, Propeller, we've got 50 or so crypto clients, we've got about 300 other non crypto clients, but I was running around the, the hallways about, you know, four years ago saying, oh my God, everyone's going to be having exposure to crypto and blockchain technology. 

[00:38:34] Sam: And this is going to be on everyone's balance sheet in two years, got my timing way off, but I do believe that we are going to be entering in the next five years, maybe it's 10 years that digital assets are going to be a part of. every company's operations.

[00:38:51] Sam: It just, there's just no way it's not going to be there. And so I think ultimately it's, every everybody here has decided they wanted to take on a very hard problem by getting into crypto accounting. I think the work that we're doing now is going to make, accounting for digital assets, not easy, but it much more straightforward as accountants who are working, let's say for a consumer product company to say, oh, well, digital assets, a little bit of a headache.

[00:39:19] Sam: Cause I don't think about that. I think that inventory. But at least there are, you know, these standards and these basic pieces and there's this thing called SoDA. And if I go to Bitwave, Cryptio, TRES, Integral, Cryptoworth, there's always a SoDA report. And, you know, again, this is, that's sort of, I think maybe a little bit more of my vision.

[00:39:39] Sam: It's yes, you know, I think it's up to us as a crypto accounting community to say, how do we bring our friends who, you know, kind of look at us cross eyed when we say that we work in crypto into the bigger chat. And I think that, again, this is one other way to begin to standardize that.

[00:39:55] Umar: Speaking further of the use cases, so the sub ledger SoDA report is one use case. In the white paper you illustrated a dashboard example that companies can use to inform on their treasury allocation, runway, tax liabilities, and other core KPIs. Do you have other use cases in mind for SoDA that you can share?

[00:40:17] Sam: Sure. And, you know, I think you're touching on my FP&A roots there because, you start with, again, we're talking about roles and different ways you can begin to sort of tag, your, your wallet infrastructure, and then all of a sudden it's saying, okay, well, you've got this. How can you think about rolling this up and saying, whenever we get the question of, what's my runway?

[00:40:43] Sam: The answer is always in U. S. Dollars. And, you know, if we are including stable coins, we kind of include the asterisks that it's also including stable coins, but you know, there is a valid liquidity question with what is your sitting digital assets. So being able to identify different assets by type, and then being able to say, well, here's our runway in cash.

[00:41:08] Sam: Here's a runway, at the current price of a major L1 token, or if it's maybe a more thinly traded native token with a, current price and a pretty big liquidity discount. It just I think what I wanted to illustrate with that chart was, you can begin to really sort of think about, what does treasury mean to an organization?

[00:41:30] Sam: You know, I've made this as kind of a throwaway line in my, in some of my talks is, you ask five crypto finance and accounting types, what treasury means you're gonna get nine different answers and, from our perspective, it's always been about having that full liquidity picture. And so, you know, I think again, going back to what is reported on a balance sheet.

[00:41:52] Sam: The way it is today with, at the lower of cost impaired value, that that number tells you nothing. And in fact, it's really misleading. And so I think it is, again, going back from an operational perspective, making it very clear what is there, and then if you want to think about whether it's runway, whether you want to think about

[00:42:10] Sam: what is your tax liability if you're sitting on a billion dollars of a native token? But I think it's also, one of the things that we, in 2022, there was a lot of very big funding rounds going on and, a venture firm gives a startup 20 million that generally comes with audit provisions.

[00:42:31] Sam: And so, one of the things that we realized in 2023 is that we had this new area of work called audit readiness, and it was always something we did, but it was like, wow, we've got a bunch of them now because the funding environment two years ago was healthy. But we also realized that, when you start thinking about getting ready for an audit, being able to, have, you know, what can you be disclosing to your auditors that says you've got your stuff organized.

[00:42:57] Sam: And obviously that's not what an auditor is going to check off his box, but it does begin to show, tell your story. And so, you know, I think there, as I mentioned earlier, it's audit readiness, tax preparedness, regulatory readiness. And again, I think you start looking at, investors, it's the investors that you want.

[00:43:18] Sam: And so how do you, how do you begin to, show that not only what do you own and in a very clear, concise way, not just saying here, all my wallets, but, it shows that you've got your stuff together. And by the way, there are, there's more than one VC that is now making that a part of their investor rights.

[00:43:35] Sam: And again, so, you know, an investor can clearly and very quickly see what is behind the digital asset entry on a balance sheet. 

[00:43:46] Umar: Now, Sam, I also want to speak a bit about Propeller and overview of the services that you provide. You just mentioned audit readiness. So for companies who have decided to have digital assets on their balance sheet, what are some of the recurring challenges that they initially have that you guys at Propeller would help them with, with regards to the accounting, tax, or any advisory work? 

[00:44:10] Sam: Sure. Look, I think again, we think about a lot of, especially the crypto clients that come to us and for the most part, they're, you know, engineering teams of, six or seven men and women, and maybe there's one non technical person on the team, but they're not really an accountant and the idea of, and I'm sure everybody who's on this call can empathize in one way or the other.

[00:44:34] Sam: The idea of actually spending their time making sure that the books are done is not what they, not what they signed up for in startup world. So I think that, again, I said this earlier, it's, it's taking this stuff off their hands, number one, and you know, again, I'll oversimplify something I said earlier, but what do we offer?

[00:44:54] Sam: We make sure that they don't go to jail for screwing up their taxes. We make sure that they know how much runway they have, and we make sure that they're ready for their next round of funding. We do more, there's a lot of things that go under that, but that's kind of it. And, one thing that we have been seeing, and again, it's another point that I mentioned earlier is we are working with consumer product companies that are now looking to spin up an NFT.

[00:45:17] Sam: Again, digital assets are going to be a part of everyday business operations. It's not just the folks that are building really interesting infrastructure projects. And so I think, when we talk with, those businesses who are, they don't know from this, but they do know that, there is a way that they can have a consumer product company that is fill in the blank, here's a way for them to create a, a connection with their customer that goes beyond just a loyalty program, from a website.

[00:45:49] Sam: So, I think there is the demystification is maybe a very high level way to, phrase it, but, I think at the end of the day we're taking a very big, an important thing off of their, off of their hands. And I think, I think you asked the question of what else do we do, but I'd say that at its very core, our clients want to make sure their books are closed.

[00:46:11] Sam: They want to make sure their taxes are filed. Then they want to have a better understanding of their financials. How do you, actually operationalize your month end close? And how do you make your financials actually be really just core to your business decision making? And then finally, I think, the ultimate goal for any CFO at Propeller and anyone who is, in that a similar role should be the trusted advisor in the room.

[00:46:40] Sam: I mean, I, attend board meetings for the clients I work with. I am the de facto CFO. I'm not an officer in the company, but I am looked at for, those hard and, challenging strategic decisions. 

[00:46:53] Sam: Ultimately also Propeller, we meet our clients where they're at.

[00:46:57] Sam: We don't need to say you need a CFO. You need a, FP&A resource, at early stages, pre revenue, getting the books done is good enough for a lot of clients. And we know that in time, those other elements will come into play. 

[00:47:13] Umar: Sam, we've been speaking for some time now, and I want to be mindful of your time as well.

[00:47:17] Umar: So for the last question I have is, I want to speak a bit about what's next for SoDA in the upcoming months. So my question is threefold, kind of the roadmap for SoDA in the upcoming months. So with the V2 release, also some of the implications of the FASB update that's being implemented, if you can tease out some of that new content.

[00:47:39] Umar: And also lastly, how can we get the listeners listening to this podcast involved? 

[00:47:44] Sam: Of course. So what's next? I think, within the next month or so, we will have a V2. I believe there's an area to sign up on the sodafinance.xyz. If not, please look me up on LinkedIn and shoot me your contact info. And so I think that, you know, socializing that document is certainly sort of the next big thing. As I mentioned earlier, I want to have the listeners from this episode. I want to have, everybody who is a CFO, Controller, Accounting Manager, who reads this, who thinks it makes sense. We don't have this spun up yet, but I want them to go to sodafinance.xyz, we will have an area where you will have an opportunity to say, do you endorse SoDA as a best practice?

[00:48:34] Sam: Language to be determined, and I'm sure it'll be very non binding, but, I would love to have, I don't know, 100, 200, 500, I don't know if there are that many practitioners in the space, but, leaders in this space saying, well, first of all, you know, always open to comments.

[00:48:50] Sam: And, if there's a better, smarter, quicker, or better way to do something that we've described, I want to hear it again, very open to any comments. But, what I'm hoping for is we can have an endorsement period, we can include the community. And then, you know, in the fall, at some point, we can roll out a V3 that says, as a community, we have said that this is a best practice that we feel makes sense for the way for us to do our job. And I think that's really where I would like to see SoDA at the end of the year. 

[00:49:25] Umar: Perfect. Well, that looks very promising. Now, Sam. Thanks a lot for coming in today.

[00:49:30] Umar: I'm sure the listeners have enjoyed learning more about SoDA. I take my hats off to you and to the team at Propeller and also the new accountants coming to contribute on SoDA. You shared that Mackenzie Patel, for example, is now a contributor as well. So the listeners are familiar with Mackenzie. She was previously a guest on this podcast. She's an instructor at the Academy. So you guys are doing a fantastic job. Now, there's a last, last question, which I like asking to my guests before they leave Sam is, do you have a favorite quote or a maxim that you live by? 

[00:50:08] Sam: Oh boy, I'll give like a fun story, then I'll actually maybe get into, a sort of serious maxim, but you know, look, accountants don't get into accounting because, or they do get into accounting generally because they like predictability.

[00:50:23] Sam: They want to do their AP in the morning. They want to do their bank recs on Fridays. They want to do the payroll every other Thursday. They want to do a close call the second, or third once in a month, it takes a special kind of individual to get into crypto accounting because, the persona I just described doesn't particularly like tools that don't work perfectly.

[00:50:46] Sam: They don't like rules that are evolving and, are not necessarily all the times comfortable with ambiguity. And so, my hats off to everyone on this call for, taking that jump and, probably having, colleagues and friends saying, why are you doing this?

[00:51:01] Sam: You are doing a great job as a SaaS accountant or what have you. But there's a, I think about the quote from JFK and talking about going to the moon and it's, we weren't going to do it because it was easy. We're going to do it because it was hard. And I think that really, I think, sums up a lot of, the attitude that I see from my colleagues of what attracts them to this.

[00:51:24] Sam: And it's a challenge and this isn't a check the boxes and go home kind of area of accounting. So I don't know, maybe I am associating a moon landing with crypto accounting, it might be a bit of a stretch, but you know, it always kind of gives me, gives me pause to say, hey, this is something that's a fun challenge to take on every day.

[00:51:44] Umar: Yeah, I agree. I mean, if we're accountants, we're not going to be working to go in space, right? The closest we can do is like a contribute to crypto accounting. Sam, you did share how should people reach out to you earlier. Would you mind resharing that before we end the episode? So I guess you said LinkedIn is the best place, right?

[00:52:05] Sam:  Yeah. Also S Leichman, that's Leichman at Propeller Industries. Connecting with me on LinkedIn is probably easiest. Then we can trade, trade emails. 

[00:52:14] Umar: Perfect. Well, thanks again for your time today, Sam, and we'll be in touch. 

[00:52:18] Umar: Great Umar. Thanks so much. Great to see you. Have a terrific weekend. 

[00:52:21] Umar: I would like to thank everyone for listening to this episode.

[00:52:24] Umar: You will find all the links of the episode, show notes and transcript on the website of The Accountant Quits at theaccountantquits.com. Please note that this content is for general information purposes only and is not a substitute for consultation with professional advisors. If you do know anyone who could benefit from the episode and you care about them, please do share the episode with them.

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