DeFi for Institutions—Ledgible Infrastructure & Tax Reporting Brings Down Adoption BarriersSponsored
Accounting infrastructure and tax reporting software are key for institutions using DeFi to stay in compliance and keep customers happy. What’s the appetite for DeFi among institutions? Many traditional enterprises are interested in exploring and potentia...
By: Ledgible •Sponsored
Accounting infrastructure and tax reporting software are key for institutions using DeFi to stay in compliance and keep customers happy.
What’s the appetite for DeFi among institutions? Many traditional enterprises are interested in exploring and potentially using decentralized finance platforms, but are decidedly less interested in complex accounting and tax reporting.
That’s understandable, because nobody likes accounting nightmares. Specialized software platforms like Ledgible provide white-label accounting infrastructure and information reporting services for digital assets, enabling institutions to mitigate tax reporting risks and jump over the typical hurdles to adoption. Organizations that choose to adopt crypto accounting infrastructure and software often integrate DeFi ahead of their peers.
Keep reading to deepen your understanding of DeFi accounting and tax information reporting for enterprises. Get the scoop on why top-notch infrastructure and reporting services are key for your business to offer or use DeFi successfully.
What is decentralized finance accounting for institutions?
Institutional DeFi accounting is the practice of accurately recording, categorizing, and reporting financial transactions that occur on one or more decentralized finance platforms. DeFi accounting can be for institutions directly, or may be conducted on behalf of an institution’s customers.
Institutional DeFi accounting is necessary for regulatory compliance. But the organizations that excel the most at DeFi documentation and reporting can typically extract the most benefits from their decentralized finance activities.
Expert DeFi accounting can enable organizations to benefit in several important ways:
- Meticulously track customer transactions and assets
- Efficiently manage customer portfolios
- Provide real-time portfolio updates
- Increase operational transparency
- Control legal and financial risks
- Comply with regulatory requirements
- Inform decision making
- Improve customer satisfaction
Why DeFi accounting is challenging for institutions
DeFi accounting is important and legally necessary, but that doesn’t make it easy for most organizations. The complexity of traditional accounting intertwines with the complexity of decentralized finance, creating a barrier to DeFi adoption or the need for specialized expertise.
Let’s take a look at all the reasons that DeFi accounting is challenging, especially for institutions:
- Token and platform diversity: Decentralized finance activities can occur across multiple platforms and involve many different cryptocurrencies.
- Price volatility: The significant price volatility of many digital currencies can make cost basis tracking exceptionally difficult and time consuming.
- Automated, rapid transactions: Automation on many blockchain platforms makes accounting more challenging because transactions can occur at high speeds and volumes.
- Transaction complexity: Decentralized finance supports staking, yield farming, token forks, airdrops, and other complex transactions. Accurate data collection and reporting can be exceptionally tricky.
- Regulatory ambiguity: Regulation of DeFi is notoriously lacking, meaning that institutions don’t typically have clear and well-established accounting guidelines.
How institutions can get started with decentralized finance
The path to DeFi adoption for enterprises begins with planning and preparation—and an incremental approach. Here are some early steps that an organization can take toward using DeFi or providing DeFi services for their customers.
Establish robust accounting practices
Creating an accounting system for decentralized finance is necessary for every institution before the institution can begin using or offering access to decentralized finance. This accounting framework needs to transparently provide real-time information, support decision making, and ensure regulatory compliance. Accurate and complete record keeping is fundamental to safe and successful participation in DeFi.
Create or use a reliable tax reporting system
Robust accounting supports accurate and reliable tax reporting. Institutions wishing to offer DeFi access to customers have a particular need for a robust tax reporting system, as crypto customers increasingly expect tax information to be provided to them. Getting started with DeFi means establishing a system to provide tax information to your customers in a way that maintains or increases their satisfaction.
Provide DeFi education and training
Almost everyone can benefit from receiving more information about decentralized finance. Institutions can take steps toward adopting DeFi by educating relevant personnel about this emerging area of finance. Accountants and tax professionals who are knowledgeable about DeFi, and receive relevant training, are better able to plan and implement a DeFi accounting strategy.
Form strategic partnerships
Another way for an organization to get started with DeFi is to establish a strategic partnership. Formally collaborating with a DeFi platform, DeFi expert, or technology provider can enable an institution to adopt decentralized finance with relative ease. Strategic DeFi partners can provide tools, resources, expertise, and guidance that traditional institutions may be lacking.
Start with a pilot project
Enterprises can minimize their risk when getting started with decentralized finance by beginning with a test project. A small-scale project within a controlled environment can enable an institution to gain knowledge, experience, and confidence before expanding the DeFi initiative. Using a carefully phased approach is a smart way to mitigate the risk associated with DeFi adoption.
How Ledgible makes crypto tax reporting easy
Ledgible supports institutions by providing DeFi accounting infrastructure and tax information reporting services. The platform meets institutions exactly where they’re at to provide customized accounting and reporting solutions.
Let’s dig all the way into Ledgible’s DeFi offerings:
- DeFi accounting infrastructure: Ledgible creates and delivers customized, white-label infrastructure that enables institutions to accurately and efficiently account for DeFi activity. Ledgible infrastructure tracks cost basis and other important information for many digital assets across many platforms—ensuring that high-quality data is available for valuation, tax, and regulatory compliance purposes.
- Tax information reporting: Ledgible serves institutions by providing tax information reporting for DeFi. Just like its infrastructure offering, Ledgible’s tax information reporting service spans across digital tokens and decentralized finance platforms. Institutions that use this reporting service can provide DeFi access to their customers without taking on the potentially massive burden of providing complex tax documents to every user.
Integrating decentralized finance or offering DeFi access to customers is a major step forward for any organization. Participating in DeFi may create immense opportunities, but also poses risk. Ledgible is drastically lowering the barriers to DeFi adoption for institutions by minimizing the accounting and reporting burdens.
Written by Allie Grace Garnett