We appreciate the opportunity to provide input on potential future agenda items for the FASB (the “Board”), from the perspective of a private company preparer and an active participant in the evolving digital asset 1 space.
Accounting for Crypto Creators – Aligning Standards with Economic Reality
We want to highlight a significant gap in the current accounting standards concerning entities involved in the creation of native crypto tokens (hereafter referred to as, “crypto creators”). ASU 2023-08 currently excludes from fair value treatment any crypto assets “created or issued by the reporting entity or its related parties”, even though these assets would otherwise qualify for fair value if held by unrelated third parties. We understand this exclusion is intended to prevent issues like self-valuation abuse. However, defaulting to indefinite-lived intangible asset accounting is not a viable long-term solution for this core group. It disconnects financial statements from market realities, imposes asymmetrical treatment that understates value until derecognition, and impairs the usefulness of financial reporting for stakeholders.
Calling for actions:
We respectfully urge the Board to add crypto creator accounting to the agenda. We propose that the accounting outcome should reflect the economic use of the tokens, rather than the identity of the holders. The following principles-based criteria could ensure fair value treatment in suitable cases:
- Acquisition at market price: Tokens acquired at market price, rather than self-created or at significantly discounted or preferential rates, should qualify for fair value accounting.
- Lack of control over the protocol: Entities that do not have the power to govern the relevant activities or unilaterally change significant functions of the protocol, such as its supply or token creation rules, should be eligible for fair value treatment.
- Economic substance and usage: Tokens with active utility, third-party adoption, or clear transactional history should be fair valued, excluding initial tokens that have never been used.
- Anti-abuse safeguards: Additional measures, such as rapid turnover thresholds or requiring fair value election for tax purposes, could help deter potential manipulation.
Accounting for Tokenized RWAs: Substance over Form
A growing category of crypto assets not addressed by ASU 2023-08 is tokenized RWAs, such as stablecoins, tokenized Treasury bills, and asset-backed tokens. These are designed to mirror the value of traditional financial instruments. Despite this intention, uncertainty about the enforceability of redemption rights may cause these tokens to fall outside of the scope for both financial assets and crypto assets under ASU 2023-08. As a result, they exist in a grey area with no clear accounting framework.
Calling for actions:
We urge the Board to issue authoritative guidance on the accounting treatment of tokenized RWAs. Currently, practice is fragmented:
- Some practitioners focus on the features of the token itself;
- Others emphasize the specific rights and circumstances of the holder, leading to different treatment for the same token by different holders.
- Additionally, some apply a “look-through” approach, classifying the token based on the underlying asset it represents.
The lack of consensus leads to inconsistent classification of similar tokens as financial assets, intangibles, or even cash equivalents. To reduce diversity in practice and promote comparability, we recommend that the Board adopt a look-through model as the default, subject to specific criteria. Specifically, a tokenized asset should be accounted for based on the nature of the underlying instrument if:
- The holder has a contractual right to redeem the token for the underlying asset or its cash equivalent on demand; and
- The market price of the token closely tracks the fair value of the underlying asset.
This approach would uphold the principle of substance over form, enhance comparability, and reduce the current ambiguity faced by financial statement preparers. It also ensures that innovation in financial markets—such as tokenization—does not penalize issuers or holders from an accounting perspective.
Streamlining ASU 2023-08 Disclosure for Operational Use Cases
We commend the FASB’s efforts in ASU 2023-08 to provide fair value transparency to crypto assets for companies that follow an “invest-and-hold” model. However, we have serious concerns that the extensive disclosure requirements, such as the rollforward with gross additions and disposals in ASC 350-60-50-3, introduce significant friction without delivering meaningful value for transactional and operational use cases—where companies actively use crypto assets to build products, support day-to-day operations, or perform market or treasury functions.
Under current U.S. GAAP, both an entity like MicroStrategy, with long-term Bitcoin holdings, and an active crypto trading company who maintains minimal net crypto inventory, but with a massive throughput, are subject to the same disclosure requirements. We believe this one-size-fits-all approach is inappropriate and creates several issues for transactional crypto businesses:
- Potential investor confusion: Financial users may misinterpret a company’s exposure by observing massive gross additions and disposal figures.
- Lack of decision-usefulness: For companies earning revenue through spreads, fees, or product usage, investors focus more on volume metrics and fees charged, rather than cumulative gross crypto purchases and sales. This perspective aligns with the Board’s reasoning in BC68, which excludes disclosure for “crypto immediately converted to cash”, acknowledging such disclosure “may not provide investors with decision-useful information because those entities have no ongoing risk exposure to crypto assets, even if that activity was significant during the period”.
- Unprecedented requirement: In traditional industries, no similar rollforward disclosure exists for inventory balances. Imposing such a requirement for crypto assets used in analogous operational contexts represents a significant departure from established norms.
Calling for actions:
We respectfully request the Board to issue supplemental implementation guidance to clarify that:
Business segments/transactions that immediately turn over crypto assets should not be subject to disclosure requirements under ASC 350-60-50-3 and 4.