Proposed crypto accounting rules won’t cover self issued tokens
February 6, 2023
In the spate of cryptocurrency bankruptcies last year, self issued crypto tokens played significant roles in the demise of FTX and Celsius. However, last week the Financial Accounting Standards Board (FASB) said its yet-to-be-issued crypto asset accounting standards would not cover self issued tokens or those issued by related parties.
In the case of FTX, the cryptocurrency exchange held large quantities of the self issued FTT token and other related party tokens, which had a tiny circulating supply. Nonetheless, it attributed the same market value to all the locked-up tokens it held, amounting to $9 billion shortly before the bankruptcy.
Turning to bankrupt crypto lender Celsius, the court appointed examiner alleged that Celsius spent $558 million propping up its own CEL token price while insiders sold. This also inflated the Celsius balance sheet.
The FASB, which sets standards for the United States, has published its planned direction in a piecemeal approach as it deliberates specific aspects. The key decision in October was that crypto assets should be accounted for at fair value, meaning prices should be marked to market. This also applies to digital assets with inactive markets.
In December, the FASB announced that crypto assets must be reported separately from other intangibles, and any significant holdings must be separated out. Tokens often have lockup periods, so the amount of crypto assets that are restricted from sale should also be disclosed.
Apart from self issued tokens, several classes of digital assets are not in scope of the standards. These are:
- non fungible tokens
- tokens that provide the asset holder with enforceable rights to, or claims on, underlying goods, services, or other assets
- wrapped tokens.
In the February update, the FASB requested that staff now draft a standard.