Lessons learned from years of having a DeFi incorporated in the US - fireside chat

okay hello everyone we we may start so uh I would like firstly to introduce you to let's say um us and to explain why we are here so uh today we actually have uh Kimberly she's coming from the DC and she's actually our accountant from the US a really skillful crypto accountant and uh Sandra is a colleague of mine we are working for the past like two years uh dealing with Finance Tax and legal stuff in defa and crypto in general and myself my name is Alexander and I'm also having background in Finance Tax and legal and I've entered the Defi and blockchain space maybe like two and a half years ago so yeah the let's say the topic today is actually to give you a practical uh directions of having a defi in in the US and to having an entity there and how to operate R especially if you are in a crypto space because it's quite specific so maybe I'll start with our journey and then you'll understand why we brought Kim from the US to actually give you some instructions because we saw a lot of people making a lot of mistakes in practice so you don't want to repeat our mistakes and you want to learn them so yeah pretty much uh our journey started uh when we actually develop a defi saver uh which is defi tool and I I think we all had opportunity to uh learn about if saers so I won't go into you know any specifics but nevertheless going into that uh formal legal tax and accounting stuff the question was okay can we actually operate def from Serbia and the question the answer was no because we had like a legislation in digital assets but the explicitly said you cannot do b2c transactions which was crazy you know so what we did is actually we did but everyone else did we went to the US so it's usually what do people do like you either go to the US or you go to the UK that's like a standard procedure and we said okay let's go to the us we can you know establish a Delaware sear Corp that's easy to do and that's pretty much it we can do our business no no one will ask us anything that was the first mistake anyways like we got lawyers they established the C Corp we got the accountants we got the CPA so pretty much like Tax Consultants and at that beginning you really don't know whether they're telling the truth because everything they say sounds really good so pretty much like if you're going to pay some cash to your entity where all the development is they say yeah you can transfer cash like what about the amounts but you can transfer whatever you want like any amount you want and they didn't hear about the transfer pricing and transfer pricing is like a really uh difficult topic and like you have to act on a market like you're on a market it's not just sending money whatever you want so nevertheless like maybe two and a half years ago and I I joined uh def saber in the center team and then we started our story and then we fire all of them so pretty much I came I actually talked to our CEO I'm like these guys don't know what they're doing let's fire them let's find someone else so that was the first iteration second iteration was also like that so we found another ones and we try to you know build on the top of that try to introduce them into our business they failed we fire them so the good thing was like after a couple of iteration especially with the accountants uh we found Kim she was working at one accounting firm and we were like okay Kim knows what she's doing like finally you can find someone who understands the ecosystem someone that understands defi blockchain all the accounting specifics be behind that and also understand the text so she actually introduced us to her friends colleagues who are the CPAs who are even nowadays doing our taxes and regarding the lawyers uh we didn't have much of the luck there and then I was actually you know as all of us I'm I'm on Twitter and I saw one guy who is posting some really smart things I'm like okay I'll contact this guy and see whether he can be our lawyer he's like yeah sure so nowadays we are actually uh working with him but this is like I narrowed everything down this like uh three to four years process right so pretty much like we ended up with a really good advisers but it was a really really really long process so pretty much as I said now we brought Kim so she can actually explain to you how we should have done it from the very beginning and uh pretty much also we going to talk about different accounting softwares because I believe nowadays the accountants like fresh accountants in we in blockchain are actually doing everything manually which is really hard because some of the some of the solutions some of the tools have like a thousand million transactions uh day by day just imagine like a one guy would need to book that like over over a couple of months so pretty much there like a lot of accounting tools you can use to record your crypto transactions and this is actually what is used by the accountants and this uh eases the process a lot so we have slides this is a fireside chat so mixed everything a bit why we have SL slides because we don't want to miss anything what we want to tell you and pretty much we're probably going to talk about 45 minutes uh we lock the doors so pretty much we can go out and maybe a question before we start like how many of you are actually accountants here I know one please raise your hand oh yeah I know too actually yeah this is what I expected so pretty much like this is we knew that most of you won't be uh skillful in accounting so we'll try to explain things on a like on the more easiest way so you can actually understand what were the issues and if you are going to establish the entity somewhere you know abroad or in some other country where you're not familiar with your legislation you'll draw your attention on things you should be aware of and also we'll have something for the accountants because there are a lot of specifics in accounting which will be familiar to you if you're trading crypto these are the things you need to know so I'll start with the questions uh you can see the topics you're going to cover I'm not going to list them all uh I I think you read you can read them but I think we can start with uh with the first topic and the first topic is actually uh Kim why we are paying you and what do you do as as our accountant like I I think all of us want to know why the accountants are like charging us fees so much and why do accountants don't know everything and don't solve all our problems and why do we need CPAs and lawyers and Tax Consultants etc etc so maybe maybe we can start with that that's a really lengthy explanation but um yes hi my name is Kimberly Roland and I'll just go in a little bit more detail my background I've spent the last 20 years in public accounting uh the last five in the web 3d5 space I've had my hands in too many clients to count almost almost a hundred but I've seen been been around the block seen a few things uh a lot of layer ones Arbitrage gaming uh lending protocols as well as some DJs performing in the metaverse so these are super fun accounting times and I think the biggest issue that I've seen is overall it's this big accounting disconnect it's the disconnection between attorneys and accountants accountants and Tech um the engineers I don't know why I make them so angry but uh I'm excited that you're all in the audience and I hope that we can move forward and fix a few things so some of the things leading the way on this disconnection is a lack of guidance which we're not going to fix today uh also the protocols what you're doing your actual businesses and what they are doing and Performing are running ahead of everything we know as accountants they're running ahead of our platforms the software the ability for the software to capture what you're doing and then you're also not sharing with me what you're doing so that's an issue but I think what we can fix today is that the different departments we need to start communicating more effectively together but also um we have different perspectives if that makes sense and I'm going to show you a couple of these perspectives I hope uh hope no one's actually in the audience that are with these clients that we're about to go through but um I was assisting a number one nft Marketplace we'll just called them that and I asked them how many wallets do you have and the C the CEO told me he had 10ish and on the call was also the CTO who said well you know maybe 20 and in reality they had 248 so from an accounting perspective here I am applying these wallets and if I only had 20 or only accumulated 20 if you only gave me 20 addresses well all everything coming in is going to be Revenue right and then I propose that to them and they'll say oh that's an internal transfer what are you doing well you didn't give me the other wallet if that makes sense so then I said all right guys how many transactions do you have this is even worse the founder said 10ish a month the CTO said maybe a 100 a month and then sure enough we launched those API Connections in the software platform there were 1 million a day and that crashed the entire platform not just for my team but for every user of the software the vendor called me and said okay we got to cut you off I'm sorry and I upset them quite a bit because they were down and you know lesson learned look on change it doesn't matter what your clients think or what everybody's saying you have look on chain see what's connected see the number of transactions now you run into the problem too oh going on layer ones okay I have a layer one that I had a meeting with and I said how many wallets do you have the CFO said that they only had 27 the CTO said 110 in reality they had 800 where's this disconnection I didn't ask them what's their favorite wallet you know what's what wallet has the most important transactions to you like I need all the data so there's this odd communication breakage between our teams like just within the business transactions for this layer one this was fun yeah this was fun how many CFO 2,000 total from 2018 through today CTO 25,000 a year there were 4 billion that's a lot I went into a little closet I cried a little bit I came out and said okay how do we tackle this four billion that's that's something so that's where I realize we need to circle the wagons we need to bring our teams in together and we need to have some real hardcore conversations that me yeah yes so maybe to add on like if you are a a CFO you would expect from a CFO to know uh the revenues of the company he is actually paid to know that and if the CFO comes and says like I have 2,000 transactions I'm worrying about and he has like a 4 billion you should fire him that that's it like you don't need to think about it and yes like this can be like a real issue and now what I said from the beginning like imagine you have 4 billion transactions and you need to record it manually like you cannot do that like physically you cannot do that and this is why like uh like later on we're going to speak about different tools that you can use to record all of these in your books because if you don't have some sort of like internal tool or something like that you you're going to die like literally like you cannot obtain that and if the tax Authority is whether this is IRS or someone comes after you how are you going to explain this like okay yeah I have like 2,000 transactions and that's pretty much it and that's not the truth so yes and nevertheless like the these are like just some examples from the practice we were talking about and there are like a lot of different items also to consider because we all know that blockchain def5 space are like much more complicated than this we're just talking here about I don't know exchange for for Fiat or exchange for different tokens but imagine like going into the staking or lending protocol something like that it gets more more scary so we'll talk a bit more about that so let me just see yeah this is actually what we want to cover as well because this is also something that is important for your financial side this is what is important for the accounting um and I believe like we have like six topics here and uh the first one like it was the favorite one like the one we firstly disc is like just wrapping of tokens and how do you deal with that so sure Kim maybe you can explain what we discussed abolutely I so I I have to say I just want everybody to get together in a room I know accountants you don't want to talk to us I know it we know it we feel it we're we're we're introverts but bring us out of our shell and uh just attorneys your tax accountant your financial accountant bring in a couple engineers everyone needs to get together in a room and document some of your key positions such as topic number one wrapping this is a big deal how are you going to treat it you you think some folks think it's two different tokens that is what an accountant would think you have to decide as a company is it better for you to treat those as a capital um gain or loss event which triggers a taex result or are you going to treat eth and wrapped eth as one and the same that's something you need to document it's it could cause huge capital gains for you uh just determining the timing so everyone needs to get together you need to write up a documentation with your attorneys and say this is how we're going to treat this event it also helps your accountants to know how to record the transactions yes it's like really interesting topic because that's from my perspective it's like the same token it's just has the same value but you're just actually wrapping it so you can do some other stuff but when someone from the Tex authorities or someone which is not that knowledgeable comes he'll say yeah but this is R eat it's not itat so pretty much he'll say okay this is a taxable transaction so what we were actually talking about is that okay so we have itat in some different form and whether this should or should not be a taxable transaction when I'm saying tax transaction is that if you acquire that eat uh at the value of $1,000 and you're wrapping it when it's like 3,800 like now then that difference of 2,800 might be a capital gain if you're treating this as a sale right as an exchange so how we observed it we try to go to thread file like traditional finances and find something similar to this so we say okay if you want to you know do something with cash or send it abroad it has to be convert it into like digital versions you put it in a bank it's now digital you use your application and send it abroad or pay something and pretty much you're doing similar thing with e here so this is our argument and we said okay we are not going to treat this as a taxable event because we just need to wrap it we just need to do that in order to you know execute the transactions that do our business but pretty much for us it's not a taxable transaction and pretty much you can actually manipulate your capital gains and losses by wrapping and unwrapping it so yeah this this is actually the stance we took after internal discussion and discussion with Kimberly and this is maybe just one of the topics you need to consider if you are having an onchain business and actively trading with tokens so yeah and then we not an exhausted list yeah just some of our key topics that we thought we could get through but we' have hundreds so please feel fre free to ask us all 100 after afterwards you'll be here today and tomorrow so feel free to approach um next we have inventory so typically left only to accountants but you do need to get everybody in a room together and talk about this and by inventory accountants are looking at digital assets like their inventory I think I'm still on yes sorry uh so we've got you know decide if fifo is best for your your company highest end first out would be really aggressive everyone is usually falling on a conservative position of taking first in first out or spec ID completely acceptable and arguable I have been through an IRS audit with a client who did use spec ID and they didn't bat and I after we explained to them what it was but yes they were they were okay with it yeah maybe maybe we can just explain what all of this means like because we have two accountants oh true true yeah maybe maybe we can ask the accountants do you know what uh Hyo is yes that's correct high for you yeah last and first out we did kick it uh just because it's a no no it's just a red flag for almost every regulatory agency at this point so we didn't want to yeah advertise that's an option yeah foral Accounting Standards ban it so we didn't put it on a presentation but yeah as as Milos said like like uh F4 is just when you have your training crypto and like what which it are you going to sell because you need to report that for tax purposes so pretty much like if you have a thousands or billions of transactions it's really hard to do this spec ID so I think spec ID is actually you just choose the E to you want to sell exact yeah in theory that's hard to do so pretty much you take the first in is the first out and like if you earn fees for like a month and then you're selling something the second month the first it that came in or some other token you're selling it so that's that's the rule you said that rule and the accounting software does it like that hio is like really really aggressive yeah so you would basically say tell the software I want the highest eth value basis that I have and I want to sell that one almost to create a loss no matter what just depending depending on um when you purchased it access but it's really really aggressive it is aggressive now spec ID though is an option if you're using a software platform that can perform that and then we're going to talk about that a little bit later but a spec ID allows you to choose and decide what's best for your company do you want to um it can actually the software can lot pick it it will assign every every transaction that comes in every every single token that you have it will ass sign a lot ID number so then it will then allow the system to say okay if my plan is I want to have the least taxable um amount of Revenue possible so you would probably take the approach of saying okay well I want you to pick I want the software to go ahead and pick from that lot ID which is IRS approved that's acceptable really you can yes yes I've been through an audit they because the software places a lot identification number on every item you can prove that it did its job so they're okay with that but you can say I want to create I want to I want to pick the the token to sell that has the greatest short-term loss or long-term loss first and then go in and choose long-term gains and then short-term gains would be your so pretty much software does it all or the most of it so that's that's why the softw are important like you if you do it manually that's that's not recommended like you just can't do it you don't have time to do it no and it it would be hard going through an audit to prove that what you did you'd have to really be good you'd have to be Sandra really you would have to be we'll move on to her favorite topic yeah that's feel bad you haven't heard from her yet she is so smart it's crazy she keeps me on my game so we all we together true to do our best they're too nice they're too nice they're my favorite they really are yes we are but maybe we can touch upon this topic speaking of the capital gains and like um how the system is set up to do what it's supposed to do based on what we pre-agreed whether these or those transactions are going to be considered taxable and and Trigger capital gains or losses or not so you would assume the way how you set it communicated it it's working the way it should be working and that's it you don't have to think about it but like with anything else things can happen there can be some hiccups in the software and you definitely have to kind of check after it to ensure that the data that you have inside is complete and accurate and we will get to that in more detail in a bit but speaking of the capital gains specifically as it is a big thing on which you have to pay taxes and so uh maybe just one recommendation as to how you can check because like when you pull out the report from the system or like from the crypto accounting software you can see capital gains for each uh crypto token that you're holding in your portfolio right and so it gives you some total number and so if you do not have what to compare it against you cannot really be sure whether it's accurate or not whether it's too much or it's too little but what you can you can do if you have an internal tax tool like we do at the defi saver it's a great thing and we will talk about about it in a bit as well but if you don't have it to compare it against the best thing to do is just to export that capital gains report where you can see the gains on each transaction sorted uh highest to lowest and then just look up those few transactions in ether scan on chain and check it out and see whether the things are making sense so recently we had a problem where the system was incorrectly uh recognizing a interc company transaction so it was a transfer between wallets of our company so it's interc company shouldn't be taxable shouldn't create any capital gains or losses but it was not doing its thing the way it should be therefore our capital gains the total was showing in the double amount of as compared to what it should be so if we were not to catch that and look for that we would at that point be paying much more taxes than we should which is from the perspective of paying taxes in the tax authori it's always better to pay the more than less they would not complain but from the perspective of cash flow it's like you want to pay what you should be paying at a point and not giving out the money in advance so that's yeah yeah like don't trust the software at least uh at this very Point like these softwares are still developing like this market and accounting softwares in crypto are still in early stage I would say and we actually uh tested like two two softwares I believe like one is bitwave and we are still working with bitwave and the other one was crypo and although crypo was like a better for from the development perspective and we had like much of the expectation from it we just couldn't fit our business into crypto they just couldn't support everything we needed so we dropped it and we continued working with bitwave and what you heard here like bitwave also had it's hiccups but you just need to control it like you know they'll do what they do they'll do the update like they did the update last time and like you cannot get your capital gains report or something like that and it gets frustrating because I don't know every quarter you need to pay taxes you need that data uh but the thing is like and uh what we actually did what what the company we're working with they they the company actually brought us like they recognized that they need some guys to you know look at this and actually uh follow what the software is doing follow what the accountant is doing and actually work with them so you don't actually overpay taxes which is bad for you or pay less taxes which is bad for the IRS and it's bad for you so yeah well also why Engineers need to get together with the accountant so we can have something to reconcile to yes yes so reconciliation another favorite topic of Sandra of mine yes that's what I do all the time and that's um yes so in terms of that I think the the the best way to look at it at a high level as if comparing to the traditional business and like what you need to provide and how do you ensure that everything that's inside of the books is like complete as a first point you provide all the bank accounts all the transactions the the accountants book it and then they check whether the end balance for the bank accounts matches against the bank statements at a specified date and if it does then you have that certainty and assurance that all the transactions that uh that went through those bank accounts are in there so that's the first step there are many other questions that you're asking yourself when assessing whether the things are complete and accurate but this is the first step the same translates to the blockchain and the wallets so you need to ensure that all the wallets where your business is taking place through like wherever that you have your funds in from before uh today like that all is captured within the crypto accounting software that it's all connected and it's feeding the data in so that is the first step uh if you have if you operate your business not only on ethereum blockchain but also you developed l2s like arbitrum optimism all that needs to be connected as well all the data needs to be in also so just like thinking from that broad perspective like where you have your transactions and like it all needs to be part of the crypto accounting software needs to be reported and so this also brings me to this point like as the business is going some new things are appearing that that you're unfamiliar with but you recognize there is something new it's always good to discuss that with the technical people and understand it better and also discuss it with the accountant so you can set it right from the start in the system like how how you will treat it how you will observe it and also document your position so that once some time passes you know why you decided to do things in a certain way like what was your or aru argumentation so that is one and then in terms of the accuracy it's like this was definitely itely my question in the beginning like okay blockchain I see all these transactions um flowing through the wallets revenues expenses and then it all Aggregates and I can see you know I can pull out a report at the end of the reporting period and see the balances or like the quantities of each of the tokens that we have in our portfolio and I see and I see them but like how do I ensure those quantities are correct how do I know that's right but then what the source of Truth there should be is the blockchain is the wallet balances so you can pull that information directly from the blockchain and compare it against what you see in the crypto accounting software to ensure it's all good so once you do that as a as a first step you you identify usually some differences and then you then just start thinking why why could could it be so for example you C you have staked it as a staking token which um where you're earning rewards and by earning the those Rewards the quantity of that token is increasing every day those rewards are being allocated to your wallet daily so the quantity is increasing without the those transactions being pulled into the system so there is a discrepancy there so just then recognize okay I have this token which is which has some specific feature that I need to observe additionally so something like that or you have um just like the system hiccups where some transactions for some reason are pulled in twice or just not categorized well like multiple things that can be the cause of the differences but then you kind of can narrow it down by looking making some strategy into how you're observing them yeah and you have a headache with all that yes definitely we had to have um our Engineers that actually worked at the software that we're using develop us a tool now what we probably should have done was bring in some of your engineers to validate that tool that we haven't done just to create you guys some more work but yes on the uh reconciliation there is also what I would ask you is determine how much of a purist you are how much I'm not going to say how much do you care because everyone cares but um I had a client that uh an Arbitrage guy had millions and millions of transactions every year I was doing five years for him with over 300 wallets and I did it all and at the end of the day I got down I could not figure out why was I 1.5 eth off it was Rock in my world and I finally had admit it to him look I I'm 1.5 off but I'm going to go back I'm going to figure it out and he was like no no no no no no no I am not going to pay you $10,000 to go after it was only like $1,500 at the time stop it I'm not a purist move on with your life anything under five E so you have to determine where you're at now this one over here likes 0.00006 e so document that with your team see who you know agree with everyone and write that down maybe even have people sign off on that put some barriers up for your accountant because we'll Chase everything totally totally agreed yeah and we also have some topics about marketing nfts and investors and vendors employees so sure yes okay marketing nfts a lot of protocols out there um decide oh we're GNA min 10 actually last week I saw 10 million I think nfts minted just to be distributed for marketing purposes again your account's going to want to track that it's zero it costs zero there's there's no value in those you need a document for your accountant stop it don't chase them record the gas fees move on with your life because we'll spend hundreds and hundreds of hours tracking those zero basis tokens for you that thinking that you want you want to know at the end of the day everything and and you don't so just don't let that be known tell your accountant write it down in a format for them also inevitably you're going to have folks lose their wallets and you're going to be paying vendors who lost their wallet or investors or even employees if you're paying employees in crypto they're going to lose their wallets so make sure everybody needs to get together this is definitely with your attorney and say what are we going to do in this case for each event it's going to happen and if you don't have that written down you don't have that contract signed with that vendor or with that employee you're going to pay him double yeah yeah these things are crazy because you need to document everything and like in accounting and in finance and in tax and legally you need to document everything when the tax authorities come and auditor comes they'll ask you for documentation and this is like the cumbersome part of doing all the businesses it's not it is not just blockchain business it's all of the businesses and this is why this part of the business is also important because you can do your business and have a great product but you don't want the IRS or the auditor or someone else to come to you and say okay you're doing doing this wrongfully you're going to have penalties or even like some sort of a criminal responsibility or something like that so this is why we were talking about is just to draw your attention on the most important things you have uh to consider while you're doing business because this is part of the business and this is like uh business cost you have to take into consideration while doing business always like boring as hell at least this documenting part yeah moving forward yeah I believe we we wanted to speak a bit about the regulation this is actually my part yeah like speak watch him get a little cranky yeah being mad but yeah nevertheless like I think you are all following what's happening in the US and pretty much like there's like a lot of lawsuits against like mostly like Texas but also some of the decentralized protocols uh most famous being tornado cash right and this is like even popular now but what I want to say like if someone would ask me to do some comparation all around the world and say okay uh where is the best place to open a company do some cryp business something like that like I would firstly say like us is a big no no why no no there's like a couple of things you need to consider which will be enacted or uh enacted in the US at this very moment so the first thing is that from the next year you'll need to do kyc on every user you're having like if you're considered a broker and pretty much everyone is a broker even they say like un is a broker they'll need to do a kyc and report that to the IRS that's crazy like they will not going to do that I believe so so there's still a fight against this Rule and I believe they use generative AI to you know write a comments to the IRS on this and was crazy like I don't know like 15,000 comments was written to the IRS they probably didn't read everything they might even use AI to read all of that you know to sum that up hopefully they did yeah hopefully yeah but that rule is really crazy and you don't want that into your business we are speaking about de centralized finances here we are speaking about the blockchain and ziki proofs and everything that should protect your privacy and then on the on the other hand you have a regulator saying you need to report all of this and like they issued a form on four form on four to five pages where you need to populate all the data of the users that's crazy and then the other rule that was already enacted but we are waiting for the IRS to bring the legislation in it is like all the transactions about $10,000 you need to report it to the IRS and like you need to do that you'll probably need to do that like in a month or so and what's the what's behind that they are considering crypto as cash like in Serbia I believe in every other country if you're doing transactions over €10,000 $10,000 you need to do it through the bank why so the government can see it so they were thinking about okay what we going to do with crypto so they say Okay crypto is Cash they literally incorporate into the definition of cash crypto and saying you need to report transaction you're having with your customer over $10,000 to the IRS so that's another kyc that is imposed and it's already enacted so you're just waiting for the let's say details so you can actually roll that out and and apply it also what is really bad thing I'm sorry Kim no I know where you're going yeah what is a bad thing about the the US and uh it's a tax regulation so pretty much like lots of companies go to to the US but the development is somewhere else like is it in Serbia Croatia somewhere on the balans or somewhere in the in Europe like most of the people who are developing uh blockchain softwares are like here in Europe they want you know some entity that can you know roll that out and it's either like UK US I'll speak about other jurisdiction soon but nevertheless you go to the US and you say okay I'll have the IP here and I'll have the development somewhere else and you're doing the R&D right you're constantly upgrading your software because blockchain is upgrading so much and all of these expenses related to development like research and development are recognized like in like uh in the amount which is 115th of the amount you're actually uh Char actually paying to your developers so what's happens in practice like you earned a million dollar and you paid $900 to to your developer and these $900,000 are not recognized for your tax purposes so you're not as an expense as an expense yeah so you're not having like $100,000 profit you're having like $900,000 something dollar profit you're paying 25 1% tax on that this hits your cash flow really really hard and this is something no one is talking about but when you actually go it's new in 2023 this just hit us this yeah this really hits your cash flow like you cannot recognize those expenses you can argue that some of these expenses are maintainance but you need to document that and imagine how much time you need to document that like everyone needs like the CDO and all the people need to do you know to populate time sheets and they hate it like they really hate to do that and even though you do so it's like hard to explain to the tax authorities what is actually research and development in that story and what is the maintainance so it's a question how do you want to approach that or the question is whether you actually want to think about that or you want to move somewhere else and that's for the US so us is like a big no no at the moment and it's really like it's a Pity this it was it was a panic moment for everyone in September October um we had a run around like two days before the tax return not not us but there was another client that uh we ran around trying to collect every engineer we could speak to can you imagine a like going up what how much you know were you time were you spending on developing new product and they're like panic and looking at me in fear like why are you asking me that question what did I do wrong um I'm like no no we're just trying to save money on taxes how much and we're just freaking out and you know they're like let us get back to you on that you crazy psycho but they did they came back to us and I remember them deciding that like 12% was their magic number um the rest of the time they were spent maintaining the black chain uh patching and security but as far as new products go they decided only 12% so but this had been you know in business since 2018 and it had been a while and to be conservative we decided to go with 20% but we documented every engineer and what they said and and oh seven and whoever voted you know it was like a vote and we decided to take like an average but uh 12% was our magic number and to be conservative we went up to 20 so it it is it's a huge deal and I'm I'm so sorry yeah no no is but yeah nevertheless like and also the Europe is also introducing like Europe for instance in opposite to the US is actually bringing the legislation and you have Mika everyone's talking about Mika but Mika is also restrictive you know and it's also hard to implement because there are some legislation about stable coins coming into Force like next month and uh I was just we were just talking internal like how this is going to be applied in Europe you know it just you know so so many uncertainties here and so many development and it's really you know hitting the kyc side of of Defi and blockchain but also the parts where like I don't know stable coins need to fulfill this and this condition etc etc so you know it's it just the legislation is going to some place and we actually need to you know fight against that as much as we can and the other countries as well like someone is you know metion mentioning the Emirates they have a crypto legislation they have Vara which is like uh body for digital assets they have like sandbox regimes you go there you do whatever you want they will not you know impose legislation on you which is great but the other on the other side I have a friend who worked there like for 10 years and he's like the bureaucracy is crazy and you would not expect that from from the Emirates which is like flexible country and everything is allowed so yeah yeah pretty much like and you have like those um islands in the in the Pacific which still have the regulation actually they have like most of them have crypto regulation but it's flexible so this is something also to to consider like it's not an advice but I'm just you know uh sharing what we were exploring what we were thinking about that and just seeing in which direction we we're actually heading it's okay to have a plan B yeah it's always good to have a plan B especially and you need just to consider that depending on what your product is so nevertheless I I'll stop here uh I can you know go with this until tomorrow but uh the other topic I we had is actually related to these accounting softwares because there's a lot of them and pretty much like you should use them like even like if someone is doing a lot of trading you can use it for personal uh purposes but nevertheless like these are all like business related and I'll just leave uh Kim to let's say introduce you to some of the specifics you should consider I believe you didn't name them I did not name them because I didn't want to get in trouble I work with a lot of them so I put my top don't judge me I put my top four um Sci-Fi TV shows up there so but uh as their names uh so anyway so digital accounting software platforms and when you go to address these I do recommend to the two accountants in the room that you bring in an engineer cu they're going to know what how your protocol is working and how if that platform will assist you and don't be scared guys you you can the accounting terms aren't bad uh but some of the things you need to ask the software themselves when you meet them there's more than 20 out there but I honestly there's a top four I have you can ask me after I'm not going to stay on camera but you want to first ask does the platform itself connect to what your accounts are using Ledger wise are they using sap QuickBooks zero there's a new one on the market called puzzle that some folks are looking at so make sure it connects uh make sure uh if you're in and out of liquidity pools and staking that that also will be able to be automated beware they all say yes yes it can be done technically you can manually Force the software to do it but that doesn't save you a lot of time so make sure that that's an item uh are is your our nft is a thing for you that could be an issue as well some of them still don't bring in nfts they are really running behind the game and if we have any very famous people in the audience you have more than 10 million followers please stop naming your wallets I spend my nights in front of the TV from 8 to 10 I have to hide all the nft spam that gets brought in three to 5,000 a day are being dropped in famous people stop it stop naming them um PES in AR uh a lot of us are paying bills using crypto can that be applied via the software that's a that's a make or breaks for some of us Sandra knows just shaking her head yes yes what's on the road map what's on your road map so you know some of us usually run behind the game at best we're in the present but are we in the future do we know where you're going which chains which chains you're on I know that you recently joined a few more and added some more wallets she's like oh I added some more wallets the software I was scared look and it wasn't bad but uh yeah so make sure that they're automated the software themselves and to be honest there's this really big one that I'm not a fan of but they are still only connected to ethereum and uh pulling in Bitcoin otherwise you're out pricing index is that important to you sometimes yes sometimes it rocks people's world that they connect to crypto compare or coin gecko or coin market cap which pricing index is your preference and that that's a big deal because that's caused us some differences exactly and also with timing with the like when the price is fetched there can be a delay of like 45 minutes 1 hour Kim shared that there are some softwares we fetching prices with one day one day 24 hours of a delay which is kind of unbelievable only by the day uh my number one choice uh which we've we've already named them but uh my number one they fetch by the hour so at least it's by the hour instead of by the day exactly yeah so that's a thing but support for me support is huge because there are all of these are broken like I think I even put a warning up there saying they will break on you every week it's something new because they're also building you know they're trying to up their game or adding new um amenities you know attaching to new chains so every week it's once a week it's but to be honest we're still using the best one I have uh so you just have to know what support you have is it Live support can you get a person in person to zoom you once a week that's great otherwise do they have a slack channel do they have a bot I don't do bots like it's it's I I need immediate reaction I need to speak with someone most of the time by the time I come to them I actually have direct line to an engineer I don't even I bypass sales I bu pass the support I go direct to the engineer it's usually an engineering issue once I find one so um I guess another little kind of a joke but no it's a real item I have that's kind of a personal note I guess I would say if you want to go to the next slide sure personal note I mean the vibe of the industry matters um there's one that people love to use I find them to be overly funded pompous clowns with a software product two years behind the other that's legit I can't work with them like I argue with them I meet with them once a quarter and I still just bump heads we bump heads so I'm like I can't tell a client you need to go onto that software I would just bring their nexts so definitely make sure you just fit into the vibe as well great so yeah I believe we are at the very end we have yeah it's a Q&A so yeah nevertheless we like we have like 10 minutes more so we can answer your question questions if you have any yeah I see two hands yeah sure yeah yeah s and myself will share so you were first right thanks um two questions if you if you allow me first one relates to the one of the first slides where I mentioned the L1 with 4 billion transactions I just checked a few blog explorers and they realize that there basically three networks that uh can be one of these I won't name them but yeah the major ones yes um is it really the case that the US government considers all the transactions on the L1 uh to be taxable event and you have to record no no no no not all transactions but the issue that the l1's have is every transaction produces a gas fee or a transaction fee right so every one of those events does bring them in Revenue so that's a revenue line coming into my wallets but that's the this distributed among the stakers it's not the the network fee it's the network fee goes to the like a bunch of anonymous stakers no no not not for this one in okay there's a percentage that goes to a stier but there is that the whole point to an L1 and how they can fund themselves is through their revenue fees the fee income that they're bringing in okay yes yes they give some staking Revenue fees and actually for this particular one it's the foundation that gives the re the saking revenue not the L1 themselves and the second one unrelated to the first one is that um uh the guys from mizari you know mizari uh M misari Missi yeah misari they are very bullish on changing the president this year and they really hope that if that happens everything changes to the better do you share this expectations generally no political related question camera off at least like uh yes I do agree I that thank you anyone else yeah okay I'll start from no seriously no political related questions hi uh just wondering what happened when you discovered 4 billion transactions I cried personal questions fair enough okay here you go so one question for Kimberly uh in USA according to gaap standards um crypto cryptocurrencies that are uh received and converted uh into dollars with within say in a minute or in a moment so crypto didn't change value um that needs to be recorded uh as intachable asset and are subject to capital gain or or not or those crypto assets are not recorded in the balance sheet oh yes no I would definitely bring it in okay I bring in everything there was someone here I think yep can you please pass uh thank you all so my question was related to from U taxing and accounting uh point of view uh when a company receives a crypto uh when do you calculate uh the price of that in US Dollars um I mean do you uh rely on some uh indexing uh app or I mean is it right when you receive the crypto or like end of business day well I'm sorry the question uh when do I record it yeah yes um the moment so it will come into my uh well if I'm using the software Ledger itself it will come Into The Ledger at that exact time and I categorize it to the appropriate Ledger accounting Ledger account so say it's some kind of Revenue a commission revenue or even um staking rewards I would record that and it would be recorded at that exact second now the pricing would be on the hour so say it's two you know 0 21 to 259 it would be the same price within that hour so I'm going to take the basis at that moment typically um I work with a lot of clients that you know if you're not in just one area I like to use crypto compare because it pulls from all pricing indexes and averages them not all I think there's 20 so they they take 20 different pricing indexes and average them and I just feel like that's safer because what if one goes down you're still up and running right and you're taking Global pricing right cuz technically we're supposed to be decentralized we're not supposed to know the person's in Arizona or in Croatia or wherever they're at we're supposed to be I like that it's a global pricing so I use that pricing does that yeah okay so um I guess that IRS agents are knowledgeable about that or they are I actually um I have a public company that we report to the SEC as well as the IRS and we had to do a whole write up about crypto compare and they accepted it mhm okay because uh there might be like a project in crypto where um all alternative days uh that talking of a crypto uh chain could be worth zero and on other days it would be like $100 so if you receive it as a zero then you don't have any gains but actually you do one other day well you would except the gain if it came in at zero you would just take account for the gain gain when you sold it or it leaves so according to um what we're doing the the sneaky part and the thing that kind of hiccups accountants is when you pay a bill not only do you have to recognize that expense because you're paying my accounting invoice so it's an accounting fee for you but then you also have to recognize the capital gain of that token that you're paying me MH so you'll recognize both both okay thank you you're welcome hi I was wondering if you could describe um the different the describe the importance of the differentiation between development and maintenance when dealing with overseas developers I think there was that example of if you have 1 mil in in revenue and then 900k in in expenses that might not be count so what's the significance of this differentiation I know that's your your well you'll pay a lot of taxes that's like in a natural if I if you want me to uh let's say sum it up the thing is like you need to choose a jurisdiction which is preferable from the tax perspective like last year IRS said we are not recognizing overseas R&D expenses so even though you earn ear a million and spend a million a million in in expenses will not be recognized right so you have a million of Revenue you have a million of expenses your profit is zero right you don't have anything like you don't even have cash on your account or have any crypto on your wallets but the IRS says I'm not recognizing out of that million of expenses I would not recognize like a half a million or 900,000 right so you'll pay 21% on that amount because the is not recognized for tax purposes taxes are specific because it's not like you have a million of Revenue million of expenses your profit is zero you don't pay taxes in like tax regimes you have something that is called non-deductible expenses so if they say these foreign R&D expenses are not recognized for tax purposes for tax purposes your financials looks like a million of Revenue and half a million or 900,000 expense profit 100,000 right and you pay 21% on that so that's the crazy part and this is why like us from the perspective of having an IP there and the development elsewhere it's not a beneficial jurisdiction to be so in that scenario could ju someone just have a doo here or Montenegro or wherever and then that's how they're paying out these developers and then on the taxes have this reported as a separate firm with separate firm that you're do doing business with in this scenario I actually can answer that I've seen it so we it didn't it didn't work um so not that we got caught but it was the tax CPA who questioned it it was actually on because it's our largest expense right or it was for this one particular client it was their largest expense out was um the engineering and Tech fees right and they said how much of that is R&D and we were like n what you know and that's where we panicked but we were paying a business because that's where the all the engineers and the techs were they were held there they weren't working for my company they were held elsewhere in a different entity altogether but it it we still put it to engineering fees so at the end of the day we did have to take a percentage Yeah it's just it's and I think what we didn't mention when we were talking about that is that you have to take the newly so we did say it's new newly created items only like it has doesn't exist yet so you're creating this new item this new product and you're having to you get to expense one 15th of it each year so it's over a 15-year period in instead of taking that whole expense