The most impactful web3 finance event of the year

What is EDAS?

The Enterprise Digital Asset Summit (EDAS) is a one-of-a-kind gathering of professional accountants, financial controllers, COOs, CFOs, and other enterprise decision-makers who want to stay on top of their field with the latest guidance on blockchain-based digital assets. In other words, EDAS was the big news this week.

This was the second annual instance of EDAS, but instead of experiencing a “sophomore slump,” the event doubled in size from last year, weighing in with over 350 registrants, 30 speakers, 14 sessions, and a room twice as big. I was at EDAS last year, and returning for this year made me feel a little like the proud grandparent exclaiming, “Look how much you’ve grown!”

EDAS was initially thought of as “a different kind of crypto conference:” less overstimulating degen chaos, and more a place to foster discussion and connection between “the serious people working on serious problems around digital assets,” as Bitwave CEO Pat White stated in the opening keynote. This event is where people gather to try to solve the problems of real-world use cases for digital asset technology.

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To that point, we noticed something interesting as we chatted with folks throughout the day last Tuesday. Although EDAS is timed to line up with Consensus in the latter half of the week in Austin, some people seemed disinterested in or even downright unaware of Consensus. They weren’t there for the week - they were there for EDAS.

We definitely do not have room to do a TL;DR on all fourteen sessions, so instead we're going to break it down to our Top Ten Takeaways, with a few links to some of the session audios. Let's get into it.

Top 10 Takeaways from EDAS

1. 2023 is (hopefully) the Year of Blockchain Payments

If web3 technology is going to grow, it will require companies to “sample their own merchandise,” so to speak, in terms of making and receiving payments. Megan Knab, CEO of Franklin, commented on this during a panel focused explicitly on blockchain payments. “One of the reasons we started Franklin was because of a frustration of web3 companies not operating in a web3-native way,” she said. “I think as an industry to really be able to grow, we have to be able to ‘dog-food’ our own technology.” That’s not to say that every web3 company needs to start shifting exclusively to crypto payments. More that, up until the last 12 months or so, even having the option of conducting crypto payments in a stable, predictable way was not really mainstream.

So what about this unique moment makes 2023 “the year of crypto payments,” as Bitwave’s Pat White dubbed it? Part of it is something we’ll get into in the next item - traditional companies are slowly but surely stepping into the crypto space, asking questions about how to interface with this industry in a compliant, legitimate way.

But companies are also exploring unique, real-world use cases for crypto payments. Whether that’s Circle’s…uh…circle of people that got into all this because they had a passion for moving money more seamlessly around the world or the bright minds at Superfluid working on streaming payments (more on that one later), people are leaning into the challenge neatly summed up by Ron Quaranta of Wall Street Blockchain Alliance:

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“How do we do what we’ve been doing and why have we been doing it this way?”

2. Traditional players are getting on board with digital assets

Bigger, traditional institutions are starting to dip their toes into the waters of digital assets. Some of them are keeping a low profile about their involvement for now. Meanwhile, some had booths later in the week at Consensus with an entire digital assets division and rad swag to give away (looking at you guys, Franklin Templeton!). But in both instances, the point is the same: understanding how institutions are thinking about digital assets is an indispensable piece of the mass adoption puzzle.

It’s been quite a journey already for legacy institutional involvement in digital assets. We went from “don’t talk about Bitcoin, just talk about enterprise blockchain” to discussions about holding Bitcoin on balance sheets. But we’re also in this odd middle space full of experimentation and building services to support the uprising of crypto finance. And a huge contributor to that, which we’re seeing debated in the halls of power in real-time, is the emergence of crypto as “the fifth asset class.”

Panelists at the EDAS fireside chat about institutional adoption of digital assets had things to say about that, specifically about how much education there still is to do. Specifically, there is a continued need to educate regulators as this “fifth asset class” is defined.

“Education is massively important - the initial challenge is around how to communicate the benefits of the technology and what you saw on the news and bringing it down to everyday impacts,” said Ekene Uzoma of State Street. “I think it’s a message around change and how this change could take effect.”

3. Wrapped tokens cause accounting controversy

This is the most controversy a wrapper has caused since Kanye West (sorry, Dad joke). For those unfamiliar with wrapped tokens, they’re a tokenized representation of a particular cryptocurrency, with equal value, that is operable on another chain. It’s like running Windows on a Mac.

KPMG noted in their FASB Update session while wrapped tokens are used extensively across DeFi, and the greater digital asset ecosystem, the proposed ASU for Crypto Assets expressly states that they are outside the scope of the proposed subtopic.

The tricky thing is that when you “wrap” a token, you’re technically disposing of one token for another – even if it’s of equal value and utility – so does this count as a taxable event?

Fortunately, Deloitte’s “Resident Degen,” Rob Massey, provided a solid framework for analyzing wrapped tokens:

• Who maintains the benefits and burdens of ownership of the digital asset?
• How much has changed? Did you get something back that is significantly different from the thing you gave up?
• What does the token represent? What is the utility it provides? How decentralized is it?

4. Crypto compliance is a top priority

In the wake of FTX and subsequent crackdowns by regulatory authorities, enterprises dealing with digital assets have compliance on their mind.

PwC Principal Frank Badalamenti gave a textbook definition of compliance, explaining it as “having a program built by design in anticipation of all the risks that could arise in the space, and doing it in a proactive manner rather than a reactive manner.”

Theoretically, compliance should be easier in the digital asset industry because all transactions are publicly stated on the blockchain. In practice, this space is relatively immature and doesn’t have the controls traditional organizations have had for decades.

However, Ian Lee and his colleagues at Merkle Science are working on systems that could give crypto companies a leg up in compliance. Where compliance analysis happens after the fact in TradFi, crypto companies can monitor wallet transactions in real-time to ensure they’re dodging AML risks and sanctions lists. With this capability, compliance teams can now proactively prevent money laundering.

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5. Streaming payments may mean the end of “payday” as we know it

Something that really caught our eye at EDAS happened in a blink-and-you’d-miss-it “tech talk” from Superfluid.

Superfluid is, in their own words, "a revolutionary asset streaming protocol that brings subscriptions, salaries, vesting, and rewards to DAOs and crypto-native businesses worldwide." In other words: streaming payments, which no - are not a new way to pay for streaming services. Instead, streaming payments are an entirely new paradigm for transferring value beyond the current model of discrete, one-off instances. Consider: what if you could send money continuously and tied to time? That’s essentially what streaming payments are.

This opens up new use cases for how people get paid, whether for payroll, vesting, subscriptions, or DeFi. For example, the idea of “payday” goes away if people start getting a slow, steady trickle of digital payments the moment they clock in at work. This also removes the need for continuous approval by AR, replacing it with a one-time authorization for a stream payment.

And obviously, there’s not a lot of guidance yet on how to account for a giant web of digital cash flows. The closest thing we have to it right now might be a draw on a salary, but even that is an imperfect comparison. So keep an eye out - within the next 3-5 years, teams building apps in this streaming payments space will need the help of many forward-thinking, innovative accountants.

6. Digital assets present new technical accounting and tax challenges

How do you account for staking rewards on Cosmos and Avalanche? How about deferred revenue on Filecoin? Interest expense on AAVE or prepaid insurance on Unslashed?

Mackenzie Patel, CPA, Founding Partner at Hash Basis, walked through each of the case studies above – journal entries and all. At what other conference will you find DeFi, debits, and credits co-mingled? What’s even more shocking is that the audience ate it up.

I suppose it’s because we’re venturing into the unknown regarding accruals and deferrals for digital assets. So, if anyone can provide some sort of guidance (informal as it may be), you’re celebrated as a crypto accounting pioneer.

Speaking of crypto accounting pioneers, Samuel Leichman and Zachary Gordon of Propeller Industries introduced us to the idea of a “fourth financial statement.” Propeller produces what they call the Statement of Digital Assets that allows them to run analytics off the numbers and do trend analysis on a per-wallet, per-token basis.

7. Crypto treasury teams take a page from TradFi’s playbook

And conversely, TradFi is also taking a page out of crypto’s playbook. Franklin Templeton’s Mike Reed let us in on everything they’ve been working on behind the scenes, from their Benji token representing shares in their “On-chain U.S Government Money Fund” to multi-coin portfolios and node operation. Talk about teaching an old dog new tricks!

The fact that you have Franklin Templeton, an 80-year-old capital markets firm, on stage with web3-native organizations like Gauntlet and Huma tells you something about institutional adoption of digital assets.

Each panelist on the “Corporate Treasury and DeFi” panel agreed that the go-to web3 treasury strategy of holding 100% of your treasury in your native token is not a great idea.

As the industry thinks more about diversification and risk tolerance, innovative treasury management platforms are popping up. For example, AERA Finance allows DAOs to deposit funds into a decentralized on-chain portfolio manager. Huma is putting a new spin on one of the most reliable forms of collateral in TradFi by helping companies factor receivables on-chain.

8. There is no “one size fits all” approach to crypto accounting

Where else but EDAS could you listen to an entire panel of crypto CPAs talking about crypto accounting? I’m telling you, we felt so seen! And not just because they were given a platform at this event. What they had to say about crypto accounting was right in line with the ethos of this entire newsletter - crypto accounting is a big job, and anybody who thinks it isn’t hasn’t spent enough time learning the ins and outs that make it such a big job.

Much of the panel dealt with how different CPAs approach their client intake (shout-outs to Fuel3, Cipher Counts, Aprio, and Centri Business Consulting for sharing their knowledge and experience!). How complicated is their business and organizational structure? How do they earn their crypto? How do they spend it? What’s their wallet structure? Beyond that, what kind of person is each client? Are they hyper-focused on the details (we accountants don’t know anybody like that, I don’t think…), or are they just saying, “You handle it; I just want to stay out of jail”?

Another takeaway for us was that the level of accounting knowledge your client possesses can significantly impact their ability to answer your questions well and, therefore, your ability to be the crypto CPA they need. As Fuel3 co-founder Mel Comer aptly put it, “It’s up to us to make these clients our favorite clients.” Once again, we come back around to education.

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9. Blockchain gaming is bigger than we thought

People intuitively know that gaming is a massive industry, but did you know that the gaming industry is larger in total revenue than movies and music combined? $7.6 billion were invested in the gaming industry in 2022. And that’s not even blockchain-specific info; that’s just gaming as a whole. Earlier this year, 48% of on-chain activity was gaming related.

Blockchain and the gaming industry have a long association - after all, Vitallik Buterin purportedly created Ethereum in part due to frustrations with ownership models for Web 2 in-game assets. And brands are exploring the ramifications of in-game asset ownership in exciting ways. Where traditional gaming is a walled garden, “one-and-done” experience for the user, web3 gaming proposes the ability to create relationships with gaming companies that could allow players to extract value from the game, even becoming sources of revenue for players.

This idea is driving a lot of energy and ideas around in-game wallets and in-game tokens, all of which are possible with blockchain gaming. Community involvement potential for blockchain games goes beyond just player-to-player connection. It potentially brings players into the game’s actual development, whether contributing to map creation, aesthetics, or gameplay.

All these developments unlock a fascinating opportunity for users to learn blockchain technology through the game. It’s the ol’ Pokemon Go effect - gamify going outside, and getting people to do it is a lot easier.

10. Bitwave is CRUSHING it

How could we pass up the opportunity to highlight some of the awesome things Bitwave is building? Bitwave is now tracking 1.2 million NFTs and has tracked $98,766,138,765.34 USD transactions. And if that isn’t impressive enough, we announced a staggering amount of features that brought some of the accountants in the room to tears (I’m not kidding).

Bitwave Co-founder and CEO Patrick White laid out three themes driving the Bitwave product:

1. Faster and better
2. Enterprise readiness
3. Treasury and risk

Faster and Better

• 300+ Quality And Integration Fixes
• New Accounting Dashboard
• Inline Categorization
• Bulk Categorization
• Advanced Import
• Transaction Filtering

Enterprise Readiness

• Hard Close
• Audit Log
• Financial Reporting Package
• Fine-Grained RBAC

Treasury & Risk

• Treasury Dashboard
• DeFi v2
• Wallet Management

And More…

• Multi-Entity Organizations
• Token Filtering
• New Tax Treatments (Inventories & Net-Zero)
• New Integrations with Aptos, ImmutableX, XRP, Near, and Hedera
• New Referral Partnership with Circle
• SOC 1 Type 2 and SOC 2 Type 2 Reports Released

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