Recently, CNBC put out a great piece on the growth of cryptocurrency funds spinning up to trade bitcoin, et al. This is a great indication of how ‘crypto’ is starting to be considered its own asset class. However, what we’ve learned, after talking to literally hundreds of crypto market players, is that many of the back and middle office processes used to do the financial accounting, tax reporting, and compliance are in fact manual. Or, done on spreadsheets with retrofitted applications that aren’t blockchain native!
A great example regarding the challenges of scaling accounting and tax processes in crypto is to consider Ether, a coin that’s divisible out to 18 decimal places. What happens when one crypto exchange rounds up trading data to 2 decimal places, another rounds to 6, and then you pull from the Ethereum blockchain to reconcile and it gives you all 18? How do you get everything to balance and run your tax calculation on arbitrage trades that cross multiple exchanges and chains with these types of data nuances?
What’s needed in order for the industry to deal with the nuances of cryptocurrencies and continue to grow is a solution that does four things:
First, the solution must simplify and standardize connectivity to many different crypto exchanges and blockchains (Bitcoin, Ethereum etc.). This is needed to abstract away the complexity of connecting to, and staying up-to-date with, the cryptocurrency ecosystem. This effort is expensive, front-end loaded, and requires hard dollars to maintain over time.
Second, the solution must have highly tuned and scalable processing engines that extract, normalize, and enrich data in order to execute business processes. For example, the solution must automatically isolate every part of a transaction and ensure each acquisition has the right cost basis assigned, with all fee types properly accounted for, in order to make sure your reporting and compliance is accurate.
Further, the engine must have the capability to allow users to select various accounting methods – on the fly – in order to determine gains and losses, mark your book to market (MTM), generate a P&L, and determine the NAV of your fund.
Third, the solution must include tools to analyze and control behaviors and events. Examples include, a method to monitor and notify a user when coins hit certain pricing levels, the ability to create alerts for traders when they’ve hit their trading limit, or analytics and notifications, for Exchanges, in order to define the lowest cost/fee transactions required to refresh coin inventories.
Finally, and perhaps most importantly, the solution must be purpose-built for the most demanding enterprises: meaning real-time, automated, append-only, continuous, scalable, and secure.
At Libra, we’re focused on helping the crypto-asset ecosystem grow and scale. We’ve built connectivity to public blockchains, crypto exchanges, and wallets, as well as the processing engines to execute real-time accounting and tax calculations, reports, and compliance.
The Libra team has also designed and engineered some of the most secure and scalable SaaS platforms used by the world’s largest banks. Simply stated, we thoroughly understand how to support the industry’s need for scalable accounting and tax processes and have built a product that’s institutional-grade from the get go.
The crypto trading industry is ready for an institutional grade back and middle office product and as a leading Blockchain/Crypto software company, Libra is looking forward to supporting enterprises as they bring more liquidity into the crypto ecosystem.
Come to Consensus Invest, in New York City on Nov. 28th, 2017 to see our new product. We’ll be there making announcements, presenting, running a booth, and demonstrating. Hope you can join us…and please feel free to share this article with your network to get the word out. Thanks!