Cryptoworth Co-founder Richard Pasquin // Web3 Accountant Radio Ep12 Transcript
Richard Pasquin is the Co-founder of Cryptoworth
Cryptoworth is an accounting software for crypto which provides smooth crypto accounting. Execute Cost Basis, WAC calculations, and generate financial reports from 130+ blockchain networks, 730 DeFi Protocols and +1000 integrations. Cryptoworth’s comprehensive data sync, insightful reporting, and effortless management make it an essential tool for CFOs, web3 accountants and blockchain finance teams to navigate the complexities of the digital asset financial landscape.
In this conversation, we dive into:
1. What is Cryptoworth?
2. Deep Dive into Defi and NFT accounting
3. Different ways to account for staking income
4. Incorporating AI into Cryptoworth
5. Why did Richard decide to enter the Web3 space?
6. One key finance lesson from Richard
7. What is Richard looking forward to in the Web3 space?
And more!
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Connect with Richard & Cryptoworth👇
Linkedin: / richard-pasquin-84a202171/
Website: https://www.cryptoworth.com/
Email: [email protected]
Hi everyone, welcome to the Web3 Accountant Radio, the podcast where we dive into the fascinating world of Web3 finance and compliance. I’m today’s host, Diana, and my partner is Wei Xiang. Hi, Wei Xiang.
Hi, Diana. Today we are very lucky to have Richard bring with us his deep experience into defi a complicated topic like NFT accounting to learn from him and also delve into a side of him that nobody has seen in recent in recent times. Yeah, Richard Pasquin is the co-founder of Cryptoworth, a comprehensive data sync insightful reporting and effortless management making an essential tool for CFOs, Web3 accountants and blockchain finance teams to navigate the complexity of the digital asset financial landscape.
Welcome Richard. Thank you for having me. Thank you.
Maybe before we kickstart, Richard, can you give us a very brief background into Cryptoworth itself? Yeah, sure. I can talk a little bit about Cryptoworth and a little bit about its genesis. So Cryptoworth is a crypto accounting and financial reporting software for Web3 companies and any Web2 company that wants to have crypto in their books.
Traditional ERPs, general ledgers have very poor, if any, support at all for Web3 financial workflows. So cryptocurrency tracking, reporting, also NFT accounting reporting, DeFi. So that’s where we come in.
A lot of people will classify Cryptoworth like a sub ledger, as a sub ledger, but we could also be used as a main ledger. It depends on the use case. We’re able to serve every vertical in Web3.
DeFi projects, accounting firms, auditors, NFT projects, exchanges, etc. Any company that has crypto to report could benefit from using Cryptoworth. And then a little bit about the genesis of Cryptoworth.
We started the company a little over five years ago in June of 2019. Originally in Montreal. I’m originally from Montreal, Canada.
We started the project there and now we’re fully remote. Our team is in four different countries. The problem was that me and my co-founder were using Excel to track our crypto transactions because we were trading a lot.
And it was very difficult to track the cost basis, capital gain loss from different data sources, exchanges, blockchains, very manual. What we knew is that from speaking with other organizations that they didn’t have a solution. Most organizations at the time were using spreadsheets or Excel and they had way more volume than we did as individuals.
We knew that was the pain point we wanted to tackle. Even today, there’s still a lot of companies that are on Excel. So that’s the point of destruction that we’re focusing on.
Thank you, Richard. So yeah, I think with regards to Richard, before I invite him onto our podcast, I went through the Cryptoworth platform and it is very comprehensive in terms of functions from fair calculating of fair value itself to integrating many different chains. I’ve seen that the software would encompass the different functions.
Yes, do check them out. If you are looking for a crypto subledger at this point in time, just before we go into DeFi and NFT accounting, you know, many companies, they are on Excel and at this point in time, when they were to choose an accounting system, are they supposed to go to Cryptoworth or are they supposed to use Cryptoworth and Xero, Cryptoworth and NetSuite? Would you be able to share this last one? Yeah, of course. We always recommend, if let’s say it’s, it depends if we’re talking about a DAO and their activities primarily on chain and they don’t have a formal corporate structure, they can’t, they probably won’t use a system like Xero and NetSuite, Cryptoworth.
They could, they’ll probably just use a system like Cryptoworth. But that’s a minority of organizations in Web3 most organizations in Web3 including foundations have formalized corporate structures, multi-entity structures. They always need a general ledger system like Fiat, sorry, like Xero, NetSuite, you know, Sage, etc, whatever it may be.
Those systems are not going away, right? We’re not trying to replace those systems. We’re connecting seamlessly to those systems. In this case, Cryptoworth would be the sub-ledger.
We would recommend they use a system like Xero, QuickBooks, etc. If they’re a little bit smaller, if they’re multi-entity structure, maybe NetSuite or a more enterprise friendly GL system or ERP, just because it’s going to be scalable on the Fiat side of the operations, right? We’re not, crypto is revolutionary, but we’re not making Fiat go away, right? Fiat is not going to disappear in our lifetime, most likely. But crypto is going to be more and more adopted by organizations, individuals.
We’re making that adoption easier for organizations by implementing our system and rolling in that information in the form of journal entries that are financially comprehensible into their existing systems. Thank you, Richard.
The next one is, I mean, if we go into today’s deep dive into today’s topic of DeFi and NFT accounting. In 2024 itself, where are you seeing more activity? Where are your customers coming from and what kind of challenges are you facing at the moment? Yeah. I would say last year we saw a lot of NFT activity.
This year, I believe we’re seeing a lot less NFT activity, way more activity on the staking side of things. Staking has never been easier before. There’s a lot of platforms out there in Web3 that are facilitating the on-ramping into staking, especially enterprise staking, like for example, Lido or EtherFi.
There’s a lot of staking platforms that make it easy to use and to adopt. And because of that, we’re seeing a lot more B2B staking, which is great for us because we’re a B2B accounting reporting software. Staking is a very attractive financial activity to get into for companies that have a big cash balance that they want to make productive in alternative investments, other than like bonds or whatever traditional investments are available for them.
We’re seeing a lot more staking and staking is becoming more and more sophisticated. There’s non-liquid staking, liquid staking, and then staking can vary the way it’s tracked by chain. Staking on Solana is tracked very differently than staking on Cosmos or Near or even like Ethereum.
A lot of chains, you can do two different types of staking. You can stake without the assets technically leaving the wallet address. At that point, it’s pretty easy to track as the Explorer shows the staking balances in it.
But then you want to be able to report the different positions of your balances, right? These positions, these assets are locked in the staking pool. Because if you’re not segregating these positions, then you’re minimizing what the company can view on their balance sheet, right? You want to have a comprehensive balance sheet. And then the complicated situation is with liquid staking, when these organizations are staking into DeFi pools and so many different DeFi protocols.
We support over 700 DeFi protocols. There’s so many out there. There’s different DeFi positions that you can deposit assets to.
Sometimes you can deposit two different tokens, three different tokens into a pool. And the value of the pool is made up of your two, three, four different tokens that you deposited into. And you’re earning some kind of yield, accumulating claimables, etc.
Those balances will not be found in the Explorer. So it’s not very simple to just rely on Etherscan or Polyscan, etc. for tracking all the financial activity of a wallet.
This is where we also facilitate other reporting, because we track many different DeFi positions on many different chains. Any kind of different staking activity that’s available, that’s unique to certain chains, we track it. So that way, when companies are calculating their cost basis or reporting their balance sheet, what’s on their balance sheet, they’re always seeing the full picture.
Because the crypto world is a system for the crypto accounting, Which function do you think is the most useful or the most attractive for the accountants who like to use the similar system? I’m sorry, the question was what system would be more attractive for accountants? Which function in your system is the most useful or most attractive for the accountants? It’s very hard to say because it depends on the vertical that the accountant is in. If the accountant is working for an NFT company, the workflow is going to be very different than a DeFi company or an exchange. If the accountant is working under a trading firm or exchange, crypto exchange, their top of the list priorities is to get the P&Ls reported frequently, right? Profit and loss of the trading activity.
If it’s a DeFi project, it’s super important for them to track every single position they have. We have automated snapshots that track spot balances, DeFi positions etc. DeFi companies love this because they struggle to capture all their balances because they’re everywhere, right? In different DeFi positions, they’re staking from different blockchains.
It’s very difficult to track everything in one place, and we essentially do that. So that’s a major pain point of DeFi projects. And then NFT companies, very different workflow because it’s non-fungible tokens.
One common problem is fair value of NFTs. That’s tricky, right? Because CoinGecko, CryptoCompare, all these market indexes, they don’t support that. But there’s a few NFT marketplaces also that can give you prices, market indexes too.
We connect to those data sources. Whenever there’s a sell event, buy event of an NFT, we track and tag them automatically on Cryptoworth. We’re very NFT friendly in that regard.
And then alWe track minting fees automatically. If a client has 10,000 NFTs, that is going to be unthinkable to reconcile one by one, right? We have an automation feature to auto reconcile these NFTs based on our ability to track any kind of NFT sell, buy events, minting fees, NFT airdrops to figure out the cost basis in an automated way. Because once you get that cost basis, all we have to do is solve the fair value challenge, which we do because we connect to different marketplaces, market indexes for NFTs.
And then the difference between your NFT cost basis and the sell is your capital gain or loss. Thank you Richard. You mentioned staking just now.
Is staking supposed to be interest income or is it supposed to be a change in digital asset pricing or something else? What do you mean by change in digital asset price? If I stake something and then I get a staking gains on the profit and loss statement, how will it be reflected? If you get staking what? Staking gains.
There’s different types of ways to, there’s different ways the staking income is reported. In some staking activities, you have your principal in a liquidity pool and you’re accumulating tokens. And those tokens that you’re accumulating is your income, but you don’t, some companies will typically not report that income until they withdraw from the DeFi pool.
And then some companies will, some companies reported every single time they get tokens into that pool as income. So that’s interesting because there’s no transaction hash. Like the vast majority of the time, there’s no hash on chain to reflect the extra tokens that are being accumulated into the DeFi pool or liquidity pool.
It depends on the chain, but we have certain solutions for that. For example, if you’re staking on CLO, there’s no hash to represent the staking rewards. We track it by the epochs.
Some blockchains might not have a transaction hash to represent staking rewards. We use other means. It depends on the blockchain.
So staking income, if it’s easy, simple, you get a transaction, a received event coming into your wallet. That’s pretty simple, right? You see some tokens coming into your wallet. You can classify it as income.
But when it’s accumulating, it’s less simple. And then also you can accumulate claimables. You have the right to claim token rewards, but you didn’t claim it yet.
Most of the time, companies will only create a taxable event once they actually claim the tokens. It depends on the chain. Like sometimes the claiming event will create a transaction hash.
Sometimes it’s very, very unique on the chain. It really depends on the chain because every chain is quite different. Every chain has some support for staking, right? Staking is such a popular phenomenon in Web3 that every chain basically supports it.
Or if they don’t, it’s one of the first things they ask for. And they all do it a little bit differently. It’s a matter of supporting all the different ways that you can track that income.
Thank you. Just now you mentioned about automation. When I use Cryptoworth itself, there is this Cryptoworth AI Beta.
I’m not sure I’m able to shed a little bit of light on this because just now when Diana asked what is the function that accountants love about Cryptoworth, I was smiling because from portfolio to automation to reconciliation, if I were to say one function, it’s a very big challenge. But yeah, I mean, managed to come up with an answer. Yes.
What is the Cryptoworth AI? Yeah. We’re incorporating a lot of AI into Cryptoworth to assist accountants. Here’s the reality of Web3 accounting, right? The majority of accountants that get into Web3, they’re not very technical usually.
They’re really good, most likely in the accounting field. They know IFRS, US GAAP, all the accounting reporting methodologies, FIFO, IFO, how to calculate by hand, right? That’s their expertise, CPAs, etc. But with Web3, the industry kind of pushes the notion that accountants have to be very technical and almost like an engineer a little bit.
It’s almost like you have to be a little bit like an engineer or have to be a little bit of an engineer to just do accounting. And that’s, of course, very difficult of a learning curve for new accountants coming to Web3. What we’re doing is we’re trying to incorporate a lot of AI into Cryptoworth to make it as easy to understand as possible the blockchain activity.
So that way, if the blockchain activity can be deciphered and explained to an accountant, then the accountant can understand what kind of financial impact certain transactions do and know how to book certain transactions, right? Because at the end of the day, our goal is to take blockchain data and make it financially comprehensive. With the AI functions, we have two different AI functions on Cryptoworth. We have our new beta in-house AI function called Medici.
What Medici does is if you enable it, it’ll read through all your transactions in your transactions page or your ledger in Cryptoworth. And it’ll explain, based on reading the transactions and looking through the explorers, what certain transactions are about. Like if it’s some kind of contract interaction, what kind of contract interaction, if it’s for NFTs, if you’re minting NFTs.
Because if you have we track fees automatically, right? So sometimes you’ll have a gas fee. Okay, why is there a gas fee being paid? Okay, so there’s a gas fee being paid because there was a sudden event of Ethereum or this contract. A signature was done on a multi-sig and the contract executed a certain transaction, but a different wallet address paid the fee.
That’s confusing, right? Unless you’re going through the explorer, but the AI simplifies it by explaining each transaction. So that’s a pretty cool feature, I think. I think it’s going to be more friendly to new accountants in OAuth3.
And then we have another one. We have a plugin to Chatgpt. We have our own instance of Chatgpt that you can turn on in Cryptoworth.
And the Chatgpt plugin already is an expert in Cryptoworth and knows Cryptoworth in and out, because we feed it a lot of data, mostly from our tutorials, help center articles. And of course, when clients, more and more people ask the questions, it gets better. You can ask Chatgpt, how do I generate this financial report, etc.
What account type should I create for this type of blockchain transaction? And it’ll recommend not just what to do, but give you steps on how to do it. Thank you, Richard. With CryptoSubledger, I came from a Web2 accounting background and journal automation is something that is very new to me.
But with CryptoSubledger around, like Cryptoworth itself, you make journal automation such a breeze, labeling. And then now with AI functions, you have just made it something easy, a lot simpler. Yeah, I think so.
I mean, I definitely would give a big push for this. And AI on my channel itself is very trending because people like to see such things going on, because it helps to make work a lot easier, especially if, what you mentioned, the first tool where you can just understand very easily all the numbers on chain itself, what does it refer to. But as time is running out, I would like to hand over the time to Diana to learn more about you.
Okay, let’s move to today’s free talk session. And I have a few questions about why you entered the Web3 space and what are you looking forward for the future? So the first question is that why did you decide to enter the Web3 space at first? Well, I first heard about Bitcoin in the early 2010s, but only really got into it in 2016, early 2017. I was attracted by Bitcoin, learning more about Bitcoin and selling it.
I first started selling Bitcoin on eBay, because a lot of people did not have to buy Bitcoin. So that was one way I was interacting with it. And then I read the white paper, and I started to realize how massively disruptive blockchain technology will be, a digital cash system that’s decentralized, peer-to-peer, like Bitcoin would do to the world.
And then when I learned about Ethereum and the ERC20 tokens, that’s when I knew, okay, well, this is going to take off to so many different applications. And that’s when smart applications came out, so many different proof of concepts were coming out, white papers were being published, like there was no tomorrow. I was mostly a trader, I was trading a lot in different exchanges, doing some DeFi.
I was one of the first to register an ENS name. I used Uniswap when they first came out, when they were in beta, nobody was using them. I was super intrigued by where the Web3 industry was going.
And yeah, like I said a little bit in the beginning of the call, me and my co-founder had the same problem. When we were both trading, we were tracking everything internally, and it was so difficult. We figured, okay, well, this could be our contribution to the industry, build a system that facilitates crypto accounting reporting.
Because in our mind, we’re thinking, how do we help the industry become more adopted? Well, companies, organizations, even today, they’re scared to touch crypto. There’s a lot of uncertainty with crypto. We’re trying to bring more reassurance.
If a company adopts it, it’s going to be straightforward to import it to a crypto world. So that’s really my mission. That’s our mission to make crypto accounting and reporting easy to use, easy to do for corporations worldwide.
Okay. During the careers of developing such a good crypto accounting system, could you share maybe one key experience or lesson that you have learned in your journey? I mean, I can, regarding Web3 Finance specifically. Sorry? Oh, a lesson regarding Web3 Finance? Yeah, yeah.
I would say the lesson for me is, I love to learn from other people more than my own mistakes. It’s easier to learn from other people. It’s the same as me.
I really like it also. Yeah. And one thing I see, because we work with so many different Web3 Finance teams, one thing that 100% I would recommend is if anyone in Web3 who’s starting a project or has a company, or even a full-on Web3 Finance team with like three, four, five people, if you’re on spreadsheets or Excel, don’t wait until audits are getting involved or auditors switching to a subledger.
Get into a subledger as soon as possible. Set up your Web3 financial stack as soon as possible. If you just joined a startup and everything is on spreadsheets, start looking at Web3 financial tools because they’re there.
They’re there to help you. And the more the financial health of a company in Web3 is secure, theoretically speaking, it should help with the growth of the company. I think a lot of the companies that we saw go out of business in the end of 2022, they have very poor accounting standards, very poor financial reporting standards, like FTX, for example.
They were using QuickBooks. They didn’t have a picture of what their balance sheet looked like. If you really care about the future of your DAO, even a DAO, have your financial stack in place as early as possible.
It’ll save you a lot of pain. So as the player in the Web3 space, What are you looking forward to in the future for the Web3 compliance or the accounting? For Web3 compliance and accounting. Auditors are becoming more and more capable of auditing different blockchains, different crypto activities like DeFi staking, liquid staking, non-liquid staking, NFT accounting, NFT transacting.
Auditors are becoming more and more equipped to audit these types of activities. So there’s less and less margin for error and there’s less and less of a gray zone for Web3 companies to not have things in order. To be compliant and be audit ready, it would be to have all your crypto accounting reporting in place, set up with your main ledger.
If you’re reporting whatever financial figures in a main ledger like Xero, QuickBooks, these financial figures are in fiat representing crypto assets in inventory. Whatever company that’s reporting whatever financial figures, make sure that those financial figures correspond accurately to the crypto assets in inventory. So fair value reporting, very important to constantly update the fair value reporting of all assets in inventory.
It’s part of the new reporting guidelines in the U.S. and it’s becoming mandated by end of this year, December 2024.
Compliance, the more you have your financial stack in place, the more likely your compliance is there. But you do want to make sure that you work with, we always recommend organizations get consulting or work with a third party, a crypto specialized accountant to make sure that they’re compliant in their local jurisdiction, because every country is a bit different with their reporting rules. And then taxation is also a big question, it’s different in different countries based on many different nuances.
In crypto, you want to make sure that you have professional help consultation that’s available. Okay, thank you very much. And I have no questions in the free talk session.
But at the end of our podcast, do you have anything else you’d like to share with our listeners, Richard and Wei Xiang? Yeah, of course. Even if you’re a tiny startup, we do have startup accounts that are available. We want to help you grow your crypto account business with our organization.
If you’re ever looking for a crypto accounting reporting system, to track everything from AUM, financials, all your crypto activity, we’d love to help you. And yeah, we hope that everybody can be as successful as can be in Web3. Thank you, Richard.
I think from the free talk session, I have two very thankful things to say to you. You know, for you to change from a trader to the boss of a crypto accounting company on behalf of the accounting community. Thanks a lot for, you know, you didn’t start with accounting background, but yeah, I think what you say, you want to do your part.
I think you did your part with Cryptoworth and yeah, I look forward to more conversations with Cryptoworth in the future to dig more of your brains. I think you have shared a lot today in the limited time that we have. Thank you.
Thank you so much. Thank you very much. To our listeners, thank you for tuning into the Web3 Accountant Radio.
And if you enjoy this radio, please subscribe and leave a review for us. Thank you very much.
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