Highlights from October Talks: DeFi Accounting, Audits, Compliance, and Digital Asset Reporting
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October saw Cryptoworth ’s expert panel series continue, focusing on essential practices for Web3 accounting and finance professionals.
These discussions, Covering DeFi accounting, audit procedures, compliance, and upcoming digital asset reporting changes, provided valuable insights into managing the complexities of digital finance.
Below are the key takeaways from each talk, along with links to the article summaries and full recorded conversations.
1. DeFi Tracking for Accurate Accounting
Tracking liquid staking within DeFi poses significant accounting challenges. Different liquidity pool positions often lack clear market values for their tokens, making accurate cost-basis calculations a highly manual process. Finance teams in Web3 also face difficulties syncing DeFi data into traditional ledger systems, frequently resulting in inconsistent financial records.
Jozef Vogel , COO of ether.fi, provided an in-depth look at solutions available to tackle these issues, from NFT-bond tracking methods to emerging automated tools. His insights covered both the immediate and long-term adjustments that finance professionals should consider as they work with digital assets.
One key takeaway from this session was the importance of implementing adaptable accounting practices that align with tax rules specific to each jurisdiction.
2. Audit Challenges in Digital Assets
Auditing digital assets introduces unique challenges, particularly in proving ownership and control over wallets. With the limitations of “send-to-self” verification, firms are shifting toward digital signature verification for more efficient, reliable audits. Complexities in multi-signature wallets and key management add layers of difficulty, especially for startups that may lack robust internal controls.
Jeremy Nau, CPA , Partner at The Network Firm , offered expert insights on these evolving audit practices. He discussed modern methods for verifying asset ownership and emphasized the importance of secure, compliant key management processes tailored for digital assets.
A key takeaway from this session was the critical role of internal controls in protecting digital assets, and ensuring finance teams are prepared for increasingly complex audits.
3. Preparing for 2025 Digital Asset Reporting Changes
The IRS’s upcoming 1099-DA requirements for digital assets will transform how custodial brokers report transactions, impacting tax reporting for both firms and individual investors. These changes introduce new classifications, like covered and non-covered securities, which add complexity to cost-basis tracking and can lead to potential overpayment if records aren’t carefully maintained.
Nik Fahrer, CPA , Director at Forvis Mazars US, outlined strategies for adapting to these new reporting standards. He provided practical insights into how custodians are preparing for compliance and emphasized the importance of precise record-keeping as new tax reporting rules roll out.
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A key takeaway from this session was the need for rigorous tracking systems to ensure accurate tax filings and reduce potential liabilities. Rev Proc 2024-28 was also highlighted as a crucial regulatory update, influencing the reporting of digital asset cost-basis on an account-by-account basis.
4. KYC and AML Compliance in Crypto
As the Web3 space matures, KYC and AML compliance have become essential yet challenging aspects for crypto businesses. Tracking comprehensive transaction data, especially in decentralized contexts, often requires advanced systems and an understanding of upcoming regulations to meet compliance standards.
Georg Brameshuber 🧢 , head of Validvent , discussed the critical need for compliance in crypto, covering everything from KYC and AML obligations to the role of zero-knowledge proofs in data privacy. His insights addressed both the technical and regulatory demands on crypto businesses aiming to align with traditional finance while maintaining data security.
A key takeaway from this session was the importance of data transparency and security, helping crypto businesses build trust and legitimacy as regulatory frameworks like MiCA continue to develop in the EU.
5. Key Management and Audit Procedures for Digital Assets
Managing private keys and conducting audits in the digital asset space pose unique challenges, as ownership of assets is directly tied to secure key control. Traditional audit processes, like verifying asset ownership, become complex when dealing with multi-sig wallets and distributed key management, which require high levels of organization and security.
Cody Peterson, CPA , Digital Asset Audit Lead at EY , shared best practices for handling key management and audit procedures specific to digital assets. He discussed methods like Digital Signature Verification (DSV) to streamline audits and the critical role of secure, multi-sig solutions in preventing unauthorized access.
A key takeaway from this session was the importance of implementing robust key management protocols to ensure asset security, along with adopting efficient audit practices to meet compliance requirements.
Click through the session summaries for a quick overview or watch the full recordings for a deeper dive into each topic.