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  • Writer's pictureStacey Ferris

Navigating the Uncharted Waters of Native Token Accounting: A Stock-Inspired Approach

In crypto asset accounting, the treatment of native tokens has not been addressed head-on by standard setters.  The Financial Accounting Standards Board (FASB) typically focuses on needs of public companies first, and given that we currently do not have any token issuers as publicly traded companies, there is a sense that the matter is not very urgent.  For the thousands of native token issuers out there though who must prepare financial statements, the issue is urgent and immediate.  In this article, we delve into the realm of native token accounting, drawing parallels with stock accounting and proposing a framework for consideration.


Similarities to Stock Shares

Native tokens, for the issuer, bear striking similarities to traditional stock shares—the quintessential form of equity. Like stocks, native tokens are intricately linked to the performance, popularity, and market dynamics of the issuing entity. However, a crucial distinction lies in the fact that native tokens do not inherently confer legal ownership of the entity, unlike stocks. 

Housing native tokens in a Distributed Autonomous Organization (DAO) and using them for voting, however, would be a use case highly parallel to stock share equity.  Similar to stock, there could be voting and non-voting native tokens, just as there are preferred, voting, and non-voting shares of stock.  Regardless of the type and control, we propose accounting for native tokens like a type of equity.


Applying Stock Accounting Principles

Below is the conceptual framework for the major tenets of proposed native token accounting:

1. Initial Measurement – Record the total issued native tokens held by the entity multiplied by the initial offering value in the same manner as recording the creation of new classes of stock.  The initial offering value would be the value assigned to each token at creation, prior to attaining liquidity.

2. Balance Sheet Reporting – Consider having separate lines on the balance sheet for voting and non-voting token pools, with issued tokens valued at “initial offering value,” similar to booking stock at par value.  Ratios similar to EPS might be developed and included on the face of the financials or added to note disclosures, if appropriate.

3. Treatment of Reacquired Native Tokens – Analogous to treasury stock, reacquired native tokens would be recorded as a “Treasury – Native Token” and might be reported separately in current assets or rolled into the Digital Assets line item on the balance sheet.  When re-sold, record the transaction with any gain or loss going to "additional paid-in capital," not to a realized gain or loss account.

4. Income Statement Entries – Unlike traditional securities, refrain from recording unrealized gains or losses on native tokens in the income statement. Employ treasury stock accounting principles for buybacks as described above. No entries associated with native tokens should appear on the income statement.

5. Note Disclosures – Consider providing similar disclosures as that of stock equity for native tokens. Disclose the tokenomic distribution plan with detail on the total token supply, tokens in circulation, tokens burned during the period, and the totals held by executives, investors, and related parties, along with their lock-ups or vesting schedules. 

The purpose of public financial statements and note disclosures, to paraphrase the SEC, is to provide investors with sufficient information to make informed decisions.  This type of accounting and tokenomic disclosures provides investors with sufficient information to understand the impact of the native token on operations, and the potential impact of related parties offloading token supply to the market.


As the web3 space continues to mature, the need for standardized accounting practices for native tokens will grow. This proposed framework is a starting point for a broader conversation within the community. We invite readers to share their thoughts and feedback in the comments, and if you or your company have direct needs in finance, operations, or digital marketing please reach out at info@finsuiteconsulting.co.

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