Bitwave: ICOs, STO, and Token Treatments
Our customers come from all different industries, from ICOs, to ecommerce websites, cryptocurrency mining operations to hedge funds and digital asset investors. Today’s, we wanted to highlight a few ways cryptocurrency ICOs really benefit by using Bitwave.
The single biggest issue ICOs run into is how to handle their own token from an accounting and tax standpoint. The big issue is that while tokens may appear to be a liquid asset, maybe ICO’d companies hold more tokens than there is market liquidity for. Imagine that you as an ICO issue 500 million tokens, and the price goes to $2 / token, and you’re still holding 300 million. On paper you’re holding close to $600M worth of tokens, however if the actual exchanges that sell your token only have market depths (ie the number of buyers willing to buy tokens) of $2M. If you were to try and sell all 300 million tokens, you would sell through the entire buy side, and the price would effectively go to zero. So, you really don’t have a liquid asset worth $600M, you end up having to use a treatment that is more akin to an illiquid asset.
There are two common token treatments we see, the first is to keep the tokens (even though they’re minted) off your balance sheet until you actually use them (just in time recognition), and the second is to treat them like inventory and assign development costs as the COGS of the inventory (inventory treatment).
Just In Time Recognition
Let’s look at the first method. The starting accounting is easy, you want to keep an eye on the token balances, but you are not going to actually reflect that in your accounting system. When you spend some of your tokens on, let’s say, paying a contractor, you will end up recording two separate transactions. First, you’ll grab an exchange rate for your token. Next, you’ll record a revenue transaction (we’ve seen some people call this revenue ‘Token Minting Revenue’) that is equal to the value of the tokens you’re paying the contractor, then you’ll record an expense transaction with the value of the tokens categorized to the account of the expense (‘Development Costs’, for instance).
In this way, you’re essentially only recognizing the tokens when you spend them, immediately as revenue.
BTW, Bitwave makes this super easy by giving you a clean interface to do this split, and a powerful rules engine to handle the work for you.
There are many good blog posts about how to account for inventory, so we won’t go too deeply into that. Essentially, this treatment uses the development costs pre-ICO to calculate a carrying cost for the tokens. In the case that the market price for the tokens is below the carrying cost, an impairment should be made on the tokens to write off some of the value. In general, we have not seen tokens depreciated or otherwise marked down, the exception being burned / lost tokens.
Bitwave can help with this model because many accounting systems will poorly handle 500million separately tracked items, but not a system designed for tokens from the ground up!
Here are a few other reasons ICOs love Bitwave:
Bill Pay and Invoicing Do you want to use your token to give bonuses to employees or need to distribute them to investors? You can do this easily with the Bitwave platform. Our Crypto Bill Pay (Crypto Accounts Payable) feature makes it easy to pay invoices or other obligations using in crypto easy because the tax tracking and accounting journal entries are part of the process. Everything Is tracked your can easily account for these out going distributions.
One Click Mark-to-Market Calculations The value of your token will likely change over time. Our platform makes mark-to-market adjustments easy. With one click you can to mark the current value of holdings (update you holding in your books to reflect the current market value of our token). With Bitwave you can easily get a clear view of how much your tokens are worth today.
Support for Your Token Do you have a ERC20 token or a fork from ETH? Bitwave can work with you to build out support for your companies token.
Multi-User, Multi-Sig Wallets As an ICO you are probably moving your coins around, from wallet to wallet and likely distributing them to investors or selling them on exchanges. Bitwave sports an enterprise-grade multi-sig hierarchical wallet with strict access control, and quick user removal. Our system is designed with strict security controls in place, so you can feel safe about providing access to your accountants or service providers. Because you have a fiduciary responsibility to maintain your assets securely, using a multi-sig wallet ensures that a single co-founder or employee can’t run away to Costa Rica with all your funds.
Account For Everything Running an ICO, like most startups, means that you have a lot of expenses, the difference is you might be paying for those expenses with your token. Syncing your cryptocurrencies transactions, like the sale of your token with your accounting system used to be a big task. But Bitwave handles this for ICOs. While tokens come in and tokens go out, Bitwave tracks every single user and transaction, syncs this info into your accounting system, or exports it to fit your offline process.
A Powerful Rules Engines for Automatic Categorization Bitwave developed a fully automated workflow engine built around managing cryptocurrencies and tokens. As an ICO you probably have a lot of the same transaction, over and over. Save time by setting up a rules engine
Let us know how your ICO or STO handles token accounting. Please email email@example.com for more information.