Proposed Crypto Accounting Rules Won’t Cover Self-Issued Tokens – Ledger Insights

In last year’s spate of cryptocurrency bankruptcies, self-issued crypto tokens played a major role in the demise of FTX and Celsius. However, last week, the Financial Accounting Standards Board (FASB) said that 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 amounts of the self-issued FTT token and other related party tokens, which had a small circulating supply. However, it attributed the same market value to all the locked tokens it held, which amounted to $9 billion shortly before the bankruptcy.

As for the bankrupt crypto lender Celsius, the court-appointed examiner alleged that Celsius spent $558 million propping up its own CEL token price while experts sold. This also inflated the Celsius balance.

The FASB, which sets standards for the United States, has released its planned direction in a phased approach while it deliberates on specifics. The key decision in October was that crypto assets should be recorded at fair value, which means prices should be in line with the 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. Tokens often have lockup periods, so the number of crypto assets that are restricted from sale must also be disclosed.

In addition to self-issued tokens, several digital asset classes are not within the scope of the standards. These are:

• non-fungible tokens
• tokens that provide the asset holder enforceable rights or claims to underlying goods, services or other assets
• wrapped tokens.

In the February update, the FASB requested that the staff now write a standard.