How SoDA Is Changing The GAAP Balance Sheet for Digital Assets

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SoDA GAAP Balance Change

“Blockchain” is no longer a dirty word in finance. As digital assets take center stage in the modern financial landscape, traditional finance companies are adopting tokenized or crypto-centric strategies and technologies. 

But with new asset classes come new regulations and reporting requirements—especially for accounting. Traditional GAAP reporting simply doesn’t cover the complexity of cryptocurrencies and on-chain transactions. 

Enter SoDA (The Statement of Digital Assets)—a groundbreaking tool designed to bridge this gap. Developed by Sam Leichman and notable industry leaders, SoDA is transforming how organizations report on their digital assets, ensuring compliance with GAAP while providing transparency in an evolving landscape.

Sam is a CFO and Blockchain Practice Area Lead at Propeller Industries with a rich background in finance and a passion for on-chain accounting. Sam began his career in investment banking in San Francisco during the mid-1990s, focusing on technology and semiconductor equipment mergers and acquisitions. Witnessing the rise of Web 1.0, he recognized early on the transformative potential of emerging technologies. 

His journey eventually led him to the crypto space, where he identified the pressing need for specialized financial reporting mechanisms to adequately handle the complexities of digital assets. Sam’s dedication to bridging traditional finance and Web 3.0 has been instrumental in the development of SoDA.

The Origin of SoDA

Sam started to understand the potential for blockchain when he started working with Solana Labs in 2019 (currently the fourth largest layer 1 by market cap). 

“I remember starting to work with Solana and realizing that this was going to be the next big thing, like the early days of the internet,” Sam explained. “It was clear there would be a second layer of crypto finance and accounting that didn’t exist yet, and we had to figure it out. No one else was doing it, so we dove in.”

Sam’s immersion in the crypto world during the COVID-19 pandemic gave him ample time to come up with the proper accounting framework for on-chain transactions. Virtual conferences allowed him to network with industry leaders, and before long, Propeller Industries had launched a crypto accounting practice. 

This practice would eventually lead to the creation of SoDA, a specialized financial statement designed to handle the unique demands of digital assets.

What SoDA Does Differently

Traditional financial reporting systems fall short when it comes to digital assets because they don’t account for the volatility and complexity of on-chain transactions. SoDA bridges this gap, translating on-chain activity into financial reports that comply with GAAP standards.

“Accountants don’t like uncertainty,” Sam noted. “They’re used to predictable tools that help them do bank reconciliations and payroll. But crypto doesn’t work that way. SoDA was created to give companies a way to accurately report digital assets on the balance sheet without all the guesswork.”

At its core, SoDA is designed to solve a critical problem: how to best reconcile the real-time values of digital assets with GAAP-mandated book values, which are often lower due to reporting rules. 

SoDA’s solution involves introducing a fourth financial statement tailored to digital assets. By including both book values and fair market values, SoDA ensures that companies can report their digital holdings accurately while adhering to GAAP.

“We take on-chain activity, translate it to the P&L, and report on the balance sheet in compliance with GAAP,” Sam said. “That’s our secret sauce. We’ve built a standard reporting mechanism that works for crypto, something that didn’t exist before.”

Case Study: OP Lab’s Use of SoDA

SoDA was developed from Propeller’s work with OP Labs, as the primary development arm behind Optimism (OP), a layer-2 scaling solution for Ethereum (ETH). In early 2021, OP Labs was preparing for its mainnet launch and needed a way to handle financial reporting for what would soon be millions of monthly transactions.

“They needed to process between three to five million transactions a month,” Sam recalled. “We pulled in Bitwave as a crypto subledger and got everything stood up so that they could properly account for their revenue and costs.”

The challenge wasn’t just about managing day-to-day transactions; OP Labs also had to comply with rigorous auditing and tax requirements. By deploying SoDA, Propeller ensured that OP Labs balance sheet reflected both the book value and fair market value of its digital assets, an essential step in completing its audit with Deloitte.

“OP Labs represents a major success for us,” said Sam. “We took them from Testnet to Mainnet, helped them process millions of transactions, and ensured their audit and tax compliance. SoDA was critical in making all that happen.”

The Evolution of SoDA

While SoDA has already proven its value, its evolution is far from over. As the world of digital assets continues to grow, so does the need for more sophisticated reporting mechanisms. Sam and his team are constantly working on updates to make SoDA even more robust and capable of handling new developments in crypto finance.

One of the most significant milestones in SoDA’s evolution is the launch of SoDA v2, which was unveiled at the SoDA Symposium on September 25, 2024, in San Francisco. This event will bring together leaders from the crypto, finance, and venture capital industries to explore the latest updates in SoDA v2—including new use cases, fair value reporting, and best practices for bridging on-chain holdings with GAAP balance sheets.

“At the SoDA Symposium, we’ll be introducing SoDA V2, which includes new tools like token roll-forward exercises that will allow companies to track changes in their digital asset holdings over time,” Sam explained. “We’re also working with crypto subledger providers like Bitwave to integrate SoDA directly into their reporting platforms.”

Sam envisions SoDA becoming an industry-wide standard, much like how SaaS companies developed standardized metrics in the early 2000s. “We’re pushing for SoDA to become a public benefit collaboration,” he explained. “Our goal is to get endorsements from CFOs, auditors, and VCs and make SoDA the go-to standard for digital asset reporting.”

What Can SoDA Do for You?

SoDA is not just a solution for digital asset reporting—it’s a revolution in how companies approach the challenge of translating on-chain activity into traditional financial statements. With the growing adoption of SoDA by major crypto companies and service providers, it’s clear that this new standard is here to stay.

For organizations interacting with digital assets, partnering with experts like Propeller Industries can ensure that you stay ahead of the curve. SoDA offers a bridge between blockchain activity and GAAP compliance, providing the clarity and transparency that today’s financial landscape demands.

As Sam put it, “There’s no doubt that digital assets are here to stay. SoDA is just the beginning of how we’ll bring crypto into the fold of traditional finance. And we’re ready to help companies get there.”

If your company is navigating the complexities of digital asset reporting, now is the time to get on board with SoDA and ensure your financial reporting keeps pace with this rapidly evolving industry.

 

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