White Paper

The Statement of Digital Assets is a standardized report that clarifies an organization’s digital asset holdings, providing a bridge between Generally Accepted Accounting Principles (GAAP) based balance sheet reporting and the value represented on-chain. SoDA provides detailed support to the digital asset balance sheet entries by listing every wallet and asset combination (Wallet/Asset Pair) along with business use or purpose. Fair market value is also calculated to provide a more rational sense of liquidity. Taken with a company’s fiat holdings and select other assets, SoDA attempts to present a complete picture of a company's digital asset liquidity.
 
The ultimate goal of SoDA is to provide a lasting and transparent bridge between accurate GAAP reporting of digital assets and the details from multiple wallets, centralized exchanges, and other cryptographically-based ownership and/or custody arrangements. The first use case was delivering a full liquidity picture for managers of and investors in growth stage businesses with digital assets on their balance sheet. Additional beneficiaries now include auditors, tax planners, regulators, analysts, and many more direct and indirect stakeholders. 

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A balance sheet exists to report what a business owns (assets), what it owes (liabilities) and what the ownership or equity in the business is. GAAP is the financial reporting language of business in the United States, unfortunately existing reporting standards for businesses interacting with digital assets can make the balance sheet opaque. Current GAAP reporting for recording digital assets “breaks” several core purposes of a balance sheet – primarily understanding and assessing liquidity. The balance sheet should tell the complete financial story for an entity but unfortunately for those that hold and transact in digital assets, it does not. 

Recent FASB guidance requires fair market value reporting of select digital assets, however the new rules are not complete as NFTs (non-fungible tokens), native tokens (tokens created or issued by the reporting entity), select tokens representing real world assets (RWAs), and wrapped tokens are excluded. These excluded digital assets continue to be defined as indefinite-lived intangible assets that necessitates the valuation at the lower of cost or impaired value (“LOCOM” or “BV”) and can only be marked down, never marked to market. This range of treatments complicates balance sheet reporting, by reporting significantly different valuation methodologies alongside one another. Further complicating matters is the balance sheet reporting of stablecoins, essentially adding a third distinct type of digital asset that should be broken out in the same context. This is essentially comparing Apples (crypto @ FV) vs. Oranges (crypto @ LOCOM) vs. Bananas (stablecoins). 

While not mandated by GAAP, the separation of stablecoins on a balance sheet chart of account provides clarity of a ‘cashlike’ instrument. Via legislation more guidance on stablecoin reporting will be possible.

At the highest level, this challenges the operation of digital asset-based businesses as questions persist regarding operating runway, tax liability, and fully understanding a companies’ digital asset treasury. It also makes it difficult to assess, and nearly impossible to report, a firm’s true liquidity to analysts, investors, regulators, and auditors. By reporting at the wallet/asset level and providing the corresponding FV and LOCOM, SoDA provides all the backup for the digital asset balance sheet entries and in addition to providing better visibility into the aforementioned operating metrics.