How to Do Crypto Accounting for Companies With a Native Token
Setting Up Your Accounts
To manage your token finances effectively, start by creating the following accounts:
Treasury Native Token Account
Tokens minted but not yet activated, typically tracked at a zero-cost basis.
Activated Native Token Account
Tokens actively circulating, recorded at fair market value.
Gain/Loss Account
Captures gains or losses from token valuation adjustments and transactions.
Deferred Revenue Account
For unredeemed utility tokens sold through SAFTs.
Token Equity Account
For proceeds from security token sales.
Unrealized Gain/Loss Account
For recording valuation adjustments of tokens that have not yet been sold or otherwise realized.
Scenario 1: Raising Funds via SAFTs
When raising funds through a Simple Agreement for Future Tokens (SAFT):
- If the native token is a utility token, record the proceeds as deferred revenue until the tokens are delivered and the promised services are fulfilled based on the whitepaper and agreement terms.
- If the native token is classified as a security, record the proceeds as token equity.
Example Entry for Utility Token (initial receipt):
Recognizing Deferred Revenue from SAFTs
For utility tokens raised through a SAFT, revenue should not be recognized upon token generation alone. Instead, recognize revenue in alignment with the delivery of services and milestones outlined in the whitepaper and sale documentation. These may include:
- Platform or product launch
- Access to features or functionality
- Utility of the token within the ecosystem becoming active
Example Entry (partial revenue recognition upon milestone delivery):
Repeat this process as additional obligations are fulfilled and the associated revenue is earned.
Example Entry for Security Token:
Scenario 2: Minting Native Tokens
When minting tokens, no immediate accounting entries are recorded:
- Newly minted tokens remain off-balance-sheet or recorded in subledger systems.
- Token minting is typically disclosed in financial statement notes without financial impact.
Scenario 3: Paying Employees with Native Tokens
When compensating employees with native tokens, the accounting depends on whether there is an active market for the token:
If there is an active market price (token is live):
- Record an expense equal to the fair market value of the tokens issued.
- Credit the treasury token account with the same fair market value.
- Offset the gain from the zero-cost basis by crediting the Gain/Loss account.
Example Entry:
If there is no active market price (token is not live):
- Use the invoice amount or agreed compensation value to determine the number of tokens owed.
- No valuation adjustment or fair value recognition is needed since the token has no active price.
Example Entry:
Scenario 4: Buying Back Tokens
When repurchasing tokens from the market:
- Tokens are credited back into the activated native token account.
- Reduce cash or cryptocurrency (e.g., USDC, USDT) balance by the purchase amount.
Example Entry (buying 1,000 tokens at $2 each):
Scenario 5: Distributing Tokens to Investors
Once the token is generated and ready for distribution, tokens issued to investors under a SAFT are handled similarly to Scenario 3 (employee compensation). The tokens are issued from the treasury account at fair market value and offset against the zero-cost basis through a gain.
Example Entry (assuming token now has a live market price):
This ensures the accounting reflects the issuance of tokens that were previously funded under a SAFT or similar pre-sale.
Scenario 6: Regular Valuation Adjustments
Periodically revalue tokens in treasury or activated accounts to fair market value:
- Valuation adjustments should be booked to an Unrealized Gain/Loss Account, as these are not realized through actual sales or transfers.
- The offsetting entry should adjust the carrying value of the token account (Treasury or Activated Native Token Account).
Example Entry (increase in value):
Example Entry (decrease in value):
Regulatory and Tax Considerations
- Maintain accurate, detailed transaction records to ensure compliance and transparency.
- Regularly consult with crypto tax and regulatory specialists to align practices with applicable laws.
Using Crypto Accounting Software
Utilize specialized crypto accounting software to automate:
- Token tracking and valuation.
- Generation of compliant, audit-ready financial reports.
One recommended solution is Breezing, a crypto subledger tool designed to help companies track their native token activity. Breezing is currently the only tool that allows you to set custom pricing for your native token at different points in time, enabling automatic, real-time valuation updates—crucial for companies managing their own tokens with variable pricing milestones. You can see this feature in action in the video below.
Video Guide
In this video, we show you how to manually update token prices in Breezing for non-publicly listed or illiquid tokens.
Conclusion
Managing your company's native tokens requires precise accounting practices for compliance, transparency, and accurate financial reporting. Following these scenarios and guidelines ensures effective operations, regulatory adherence, and supports strategic business goals.
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