Maintaining an overview of your digital assets can become problematic during tax season. (Photo: 123RF)
THE KEYS TO CRYPTO. If you tell yourself that cryptos are a mess, that there is not much happening around bitcoin anymore apart from scams or that this digital market remains too disconnected from our realities, this column is for you.
(Illustration: Camille Charbonneau)
The world of digital currencies continues to arouse the curiosity of many people, because it conceals opportunities and new forms of investment without equivalent in traditional finance. For those seeking democratization and decentralization of financial markets, the crypto ecosystem does not only present risks, but also rewards.
Let us cite, for example, “liquidity pools”, these stocks of digital tokens locked in a smart contract to ensure faster transactions; “staking”, a sort of blockchain savings account, or even “wrapped tokens”, cryptocurrencies linked to another asset, classic or on another blockchain, used on decentralized finance platforms (DeFi)…
Naturally, when you operate in an atomized environment like DeFi, where you have to juggle different blockchain addresses, various digital wallets and so many interactions on several protocols or platforms, this tends to make simple accounting more complex. . While this already poses a challenge for maintaining an overview of one’s digital assets, it can become problematic come tax season.
Maintaining a “crypto-apothecary” account requires individual discipline, the help of accounting professionals, but not only that. On a technical level, this also requires tools capable of consolidating the swarm of DeFi transactions (swaps, airdrops, liquidity provision) and producing a coherent historical summary. And we are not even addressing here the possible difficulties in meaningfully evaluating the cumulative return on its decentralized finance investments.
Obvious in theory, the opportunities of DeFi can seem more devious in practice. However, there is also no shortage of popular tax platforms dedicated to cryptos such as Koinly.io, Coinpanda.io, Ledgible.io. But their management results can show differences of up to double when starting from the same DeFi portfolio. Collecting data, interpreting it and communicating it accurately is laborious.
In addition, the tax administration has not yet thought about all the possibilities for processing DeFi transactions. The default fragmented ecosystem of decentralized finance suffers from a lack of standardization of tax reporting methods. And the framework of standards or regulations evolves much more slowly than the ecosystem, where new protocols emerge almost every day.
Good news, all these issues represent excellent reasons to innovate. Isn’t entrepreneurship about solving the world’s problems, one product or service at a time? Technological solutions have also been seen on the market to try to reconcile DeFi transactions and taxation. Even in Montreal, like the Octav analysis platform claiming to be a “facilitator for deciphering DeFi” and which exploits data at source, on blockchains, to guarantee reliability. The Octav company has just raised $2.65 million with renowned investors in the sector (Nascent, Polymorphic Capital) or even a certain Paul Desmarais, CEO of Sagard Holdings. Currently in beta with thousands of users, seven integrated blockchains, and over 100 million transactions indexed to date, Octav will use the fresh capital to onboard more chains “to capture the entire DeFi ecosystem.”
