Ready for the New Standard of Digital Asset Reporting with SoDA

TL;DR:
The Statement of Digital Assets (SoDA) standardizes the reporting of digital asset holdings by linking them to GAAP-based financial reporting. It details wallet-asset combinations, calculates fair market value, and offers a clear picture of liquidity, helping stakeholders better understand a company’s financial health to its digital assets.

Adapting to a New Standard for Digital Asset Reporting

As the crypto back office continues to evolve, so too do the complexities of digital asset reporting. With the increasing institutional adoption of cryptocurrencies, businesses are now tasked with managing intricate transactions across multiple blockchain networks, while ensuring compliance with existing financial regulations. According to the 2024 State of the Crypto Back Office Report, companies in this space are facing unprecedented demand for tools that integrate traditional financial services with blockchain technology. These tools must not only ensure transparency and security but also enable seamless interaction between on-chain and off-chain data.

A primary challenge in this landscape is ensuring the accuracy of financial reporting, particularly with decentralized finance (DeFi) transactions and other blockchain developments. Subledgers, like the one developed by Cryptoworth, play a critical role in providing detailed records and a granular view of financial activities, essential for modern crypto businesses. As the report states, “Companies that offer a single, unified view of the financial landscape and reduce the need for manual data processing will save time and improve accuracy,” making tools like sub-ledgers indispensable.

At Cryptoworth, we have been following the development of the Statement of Digital Assets (SoDA) with great interest. Our pride lies in the fact that our sub-ledger software is continually updated to ensure seamless adoption of this emerging standard. The work done by the SoDA team represents a huge leap forward in the transparency of digital asset reporting, and we are committed to supporting companies in adopting this new framework. 

H2: What is SoDA?

A Bridge Between GAAP and Digital Assets

The Statement of Digital Assets (SoDA) is a standardized framework designed to bring clarity to a company’s digital asset holdings by linking blockchain-based assets to Generally Accepted Accounting Principles (GAAP) for financial reporting. It serves as a bridge between the traditional balance sheet and the assets recorded across various wallets.

SoDA offers a comprehensive view of a company’s digital holdings by detailing each wallet and asset combination (referred to as a Wallet/Asset Pair) along with its specific business use or purpose. By calculating fair market value for each asset, SoDA provides stakeholders with a clearer understanding of the liquidity of these digital holdings. When combined with a company’s fiat assets, this method gives a fuller picture of overall liquidity.

In financial reporting, accuracy in recording transactions is critical, but equally important is having transparency into what these transactions represent. SoDA helps accountants, investors, and auditors see the full scope of a company’s digital asset portfolio, offering the level of transparency needed to assess the financial health of businesses engaged in the digital asset space.

Simplifying Digital Asset Reporting Using SoDA with Cryptoworth

Cryptoworth’s capabilities in implementing SoDA for companies and its benefits for businesses, accountants, and financial stakeholders.

Streamlining Financial Reporting for the Digital Asset Ecosystem

Cryptoworth is fully aligned with the goals of SoDA. Our sub-ledger system enables companies to generate reports that offer a complete liquidity picture, incorporating both fair market value (FMV) and book value (LOCOM). This ensures compliance with GAAP while providing stakeholders with the transparency they need to make informed decisions.

Cryptoworth’s platform is fully equipped to implement the Statement of Digital Assets (SoDA) reporting framework, ensuring that businesses, accountants, and financial stakeholders can easily generate comprehensive and accurate reports. The level of granularity that SoDA requires, including breaking down assets by wallets and roles, already exists within Cryptoworth’s sub-ledger system, making it a perfect solution for those adopting this new standard.

SoDA’s primitives—Wallet, Asset, and Role—are core to providing a full liquidity picture for any business managing digital assets. Cryptoworth supports this structure through its advanced reporting features, allowing users to manage their data at the highest level of detail.

At Cryptoworth, accountants and finance professionals can run calculations and generate reports with unparalleled precision, such as:

• Asset by classification: Organizing assets into categories, whether they are fungible tokens, NFTs, or other digital assets.
• Classification by Asset: Viewing asset types organized by their roles within the business.
• Disposition Statements: Tracking how and when assets are disposed of, aiding in accurate reporting and tax compliance.
• Financial Flow by Connection: Visualizing and reporting how assets move between wallets and exchanges, giving transparency over the company’s financial network.
• Unrealized Gain/Loss: Providing insights into the current market value versus the book value of assets, which is essential for accurate financial reporting.
• Roll-Up Reports: Aggregating data from different wallets and assets to provide a broader view of the company’s financial health, tailored to specific reporting needs.

What makes Cryptoworth particularly well-suited for SoDA is its ability to provide comparisons between Book Value and Fair Market Value. These comparisons allow businesses to differentiate between GAAP-compliant valuations and the real-time liquidity of their digital assets. This is critical when managing and reporting volatile assets like cryptocurrencies.

Additionally, Cryptoworth’s system fully supports the calculation of SoDA primitives:

• Wallet: The system tracks each wallet’s location, whether self-hosted or custodial and assigns human-readable identifiers, providing clarity about asset storage and intent of use.
• Asset: Cryptoworth categorizes digital assets based on their fungibility, providing detailed views of token names, NFT identifiers, and other community-assigned labels.
• Role: Users can assign specific roles to Wallet/Asset pairs, which reflect their operational purpose—whether custodial, treasury management, or business operations. Cryptoworth allows for custom, entity-specific roles to be rolled up into

Future Implications and Developments in SoDA

As digital assets continue to reshape the financial landscape, the SoDA framework is evolving to cover more complex financial scenarios. Upcoming enhancements will expand beyond the balance sheet, incorporating features like cash flow statements and month-over-month token roll forwards, providing an even clearer picture of a company’s financial position.

One key development soon is the SoDA Symposium (Sep 25th), an event bringing together leaders from across crypto accounting, finance, and venture capital. This symposium will offer key insights into the next chapter of digital asset reporting, strategic tax compliance, and crypto audit success. With participation from industry leaders like a16z crypto, Deloitte, EY, OP Labs, and Propeller Industries, attendees will gain a comprehensive understanding of the latest advancements in fair value reporting and SoDA best practices. Cryptoworth is proud to be ready to support any new additions to SoDA that emerge from this critical event.

At Cryptoworth, we continuously update our sub-ledger software to ensure seamless integration with these new standards. Whether it’s fair value reporting, unrealized gain/loss calculations, or detailed audit success strategies, Cryptoworth is committed to staying ahead by fully supporting SoDA’s evolving capabilities. Our software is equipped to adapt to any new features or updates announced at the symposium, ensuring our clients can effortlessly implement the latest SoDA requirements.

In addition to the SoDA Symposium, Cryptoworth will be hosting a special event during Messari’s Mainnet in NYC (Oct 1st), where we will delve into the intricacies of SoDA and its future developments. If you’re interested in joining this event, feel free to reach out to the Cryptoworth team for more details.

The SoDA framework’s continuous evolution promises to simplify complex crypto reporting tasks, and Cryptoworth remains at the forefront, ready to help businesses incorporate these advancements into their financial reporting processes. As new standards are set, we are committed to offering timely and robust solutions that align with industry developments, ensuring our clients remain compliant and informed.

Key Contributors to SoDA

Meet the Leaders Behind the Standard

We want to extend a heartfelt appreciation to the incredible team behind the Statement of Digital Assets. Their initiative and leadership in shaping this critical framework for digital asset reporting is something we greatly admire and are proud to support. These pioneers are paving the way for a clearer, more transparent future in crypto accounting, and we’re fans of the work they’ve done:

• Samuel Leichman – SoDA Project Director, Blockchain Practice Lead at Propeller Industries
  LinkedIn
• Palash Agarwal, CPA – Financial Controller, OP Labs
  
• Ken Fromm – Managing Director, BuildETH
  LinkedIn
• Brent Gerundo – COO, Messari
  LinkedIn
• Zach Gordon, CPA – Founder, Red Five
  LinkedIn
• Drew Henderson – Partner & COO, Delphi Ventures
  LinkedIn
• Mackenzie Patel, CPA – Founding Partner, Hash Basis
  LinkedIn
• Emily Westerhold – Financial Operations Partner, a16z Crypto, Andreessen Horowitz
  LinkedIn

We salute their ongoing efforts and are excited to see how they will continue to lead the charge in advancing the future of digital asset reporting. Cryptoworth is proud to be part of this journey.

The Future of Digital Asset Reporting

We believe this is poised to be a transformative framework that brings unprecedented clarity and transparency to digital asset reporting. We highly encourage all companies within our network to implement SoDA in their financial reporting processes, not only to streamline operations but also to provide greater transparency for investors and stakeholders. By adopting SoDA, companies can present a clearer, more comprehensive picture of their financial health, and we’re happy to assist them in developing a customized format that aligns with their business needs.

Looking ahead, SoDA’s implications extend far beyond reporting alone. As digital assets continue to evolve and reshape traditional business models, frameworks like SoDA will become essential in defining the financial landscape of the future. It’s not just about accurate and granular reporting; it’s about fostering trust, transparency, and a deeper understanding of digital assets in a rapidly digitizing world. We urge businesses, financial professionals, and all stakeholders in the digital asset ecosystem to embrace the SoDA framework and the future of financial reporting that it represents.

Dive deeper into the highlights of our conversation with Sam Leichman and David Byrd to see how SoDA is shaping the digital asset reporting. Click here to explore their insights.