Crypto Enterprises - Digital Asset Compliance and Reporting With Jeff Rundlet of Cryptio

In this episode of Cryptonomix, Mark Eckerle sits down with Jeff Rundlet, Head of Accounting Strategy at Cryptio, an institutional-grade crypto accounting platform. The two discuss the importance of scalability and the need for robust systems to manage the complexities of crypto transactions. They also touch on the integration of crypto accounting with ERP systems and the future challenges the industry may face, particularly regarding regulations and the increasing volume of transactions. 

Transcript

Speaker 1 0:00

Hello, listeners, welcome to this episode of Cryptonomics. Before we jump into today's discussion, please keep in mind this recording is for general education and is not intended to constitute investment advice. Any opinions expressed are those of the participants and do not necessarily represent those of Witham . Hey folks, welcome back to another episode of cryptonomics, brought to you by Ham . As always, I'm your host, mark Eckley , and today I welcome to the show Jeff Runt , head of accounting strategy at Crypto. Welcome to the program today, Jeff.

Speaker 2 0:29

Hey everyone. Thanks, mark . Thanks for having me.

Speaker 1 0:31

Of course, of course. The one question I ask all of our guests, and where I wanna start is general intro, but also primarily your crypto journey, right? Everyone found their own rabbit hole experience and kind of what got you into the world of crypto and, and tell us a little bit about crypto.

Speaker 2 0:47

Yeah, sure. I mean, my dream growing up was to be a banker to go to the big banks. I did go to the big banks, but I stayed in the accounting department. So I jumped around from the Mora Bank of America, and then , um, I had an opportunity for my entry into crypto to move over to block fi , one of the lenders that unfortunately went under. Um, so I went there to build out their product control or accounting space. So I was there for about two years. Um, it was a really fun ride. I got to see 'em grow from, I think, 500 million valuation up to a 4 billion valuation back down to a zero valuation. So along the way I saw a lot of extreme growth and just, you know, unraveling of that growth. But, you know, I got to see from the ground level, you know, why we were making, or why we were losing, you know, so much money, you know, who the loans were defaulting against. Uh, and specifically three arrows. You know, one of our biggest , um, counterparties when that went under, you know, block five was in trouble. And I got to see that, you know, firsthand , uh, not a lot of people at the company had that transparency, but, you know, at that point I decided it's probably time to move on. And , uh, I had an opportunity at crypto , uh, which is a SaaS company to come to the other side to help support companies and , and something I was building at Block fi . And, and what crypto is doing is we're, we're a back office operating system for all companies operating in digital assets. So it , it means multiple things, but really every company in digital assets needs a software to some level. Um, if you're a simple buy and hold , maybe not, but at the same time, at the price points of a buy and hold strategy, it makes complete sense to get in. Uh, but most companies are much more complex. They're operationally running with crypto. They have all these different flows. Um , there's all different, as you know , um, requirements from an accounting regulatory standpoint to track all your crypto. So that's what crypto does. We're , uh, an operating system, which is what I consider really four different aspects of what we do. It's, it's data aggregation. So we have an in-house data infrastructure where we've run, where we run nodes, index blockchains go to the blockchain, grab the balances for any wallet wallets that we have. Uh, we also aggregate all data from exchanges and custodians. Uh , so what that does is it pulls in all the data into one spot. Um, a lot of people work, or a lot of companies work with multiple liquidity providers, meaning they need to go into different platforms to pull their balances, to get their data to understand what's happening. Crypto consolidates that into one area. We're also a controls infrastructure where we've worked with different crypto auditors in building or identifying what the risks are in different companies, crypto companies, and building out different control frameworks for these companies. And automating that. The, the third piece is, you know, the, the meat and potatoes of what we do is the financial reporting. It is automating all the cost accounting, FO by wallet. It is automating the fair value accounting. It's tracking the unit lot levels of every transaction that comes through through the life of IT impairment if you're still doing it. And ultimately the financial reporting up until , uh, booking the entries into the general ledger. So, so that, that's how we're helping companies. We're working with about 450 to 500 different companies. Um, most of them are enterprise level . The companies that are regulated right now, we're working with, I think, six of the companies that have Wells notices. So, you know, when it gets more serious, they usually start looking at crypto for the solution. 'cause we're, you know, I , I see us as the end all be all solution for back office digital asset operating systems

Speaker 1 4:35

And, and all of those products that you guys are offering to customers. Are you guys , uh, SOC compliant?

Speaker 2 4:42

We are , yeah. We're SOC one, SOC two type two compliant. We have been for about two years now. When we first got on calls, you know, these were the main questions we were getting. Mm-Hmm . Do you have your SOC report? And we have , we've always had our SOC reporting. Uh , it started out that we had type one, we were working on type two at the time, but we've been through so many iterations of this and really just doing deep dives into our SOC reporting to make sure that the coverage is the best in class . Because that in essence is what crypto is. It's, it's a technology that you could trust. How do you trust it based on the SOC reporting?

Speaker 1 5:16

Yeah. And I think that's one of the key distinctions, especially as you're , you guys and , and other software providers are scaling, right? You're going to get that question from the customer. So getting out in front of that is just paramount in order to continue the growth that you guys are experiencing. I , I'm curious, based on all those services, what are some of the biggest differentiators in your opinion, of your software of crypto software and its offerings compared to its competitors? What makes you guys different? I know personally to me, I, the one thing that sticks out to me that you mentioned is the controls piece, right? Yeah . That , that program from, it's , it's almost you'd say, built with auditors for auditors , um, with the peace of mind for companies using your software to understand the risk mapping and the controls environment needed to be audited. Um , right . And that goes such a long way that I haven't really seen anywhere else. So , um, to me that's what stands out the most. But I'd be curious what you think as well, what's , uh, the biggest differentiator?

Speaker 2 6:09

Yeah, sure. Um, that, that definitely is , uh, one of the main pieces, which makes us different. Auditors actually use us. External auditors will use crypto to go in and help streamline their auditor audits. So it , it , it shows the level of trust that crypto has in the industry. It is the whole list of controls. Like you mentioned, we we're not the best , uh, use for maybe the startup or even, you know, mid, mid entry level company because they're not maybe thinking about , um, all the aspects that they should be from a control infrastructure. Uh, they maybe don't have as many transactions, but, you know, once they get serious enough, once they start taking their financials extremely serious or are being audited, thinking about going public , uh, being regulated, that's when crypto really shines. And, and we shine because of that aspect. We also shine because of scalability. Um, a lot of companies in our industry really struggle to work with the scalability. Uh , like one of our clients, I'm not gonna name any names , uh, during the podcast, but one of the clients says , close to 120 million transactions per year that, that's a lot of transactions to keep track of at a very granular level where you need to do like fi , FO by wallet, cost accounting, for example. So scalability is where we really step aside. So if a company, let's say they have 2 million transactions and they're going to 10, that's when we'll come in. That's when then when that's when we'll, we'll, we'll win , uh, the bid with that client. Mm-Hmm . Or that's when we will work best with that client and making sure that they're future proofing, you know, their infrastructure best as possible. Um , we also work really well with , uh, with the regulated industry. We're thinking very seriously about regulations like Vara, like Mika . Uh, we're working with companies that need to comply with SAB 1 21. So it's, it's a lot of these regulation aspects. The crypto also separates themselves from other companies in how we're supporting the enterprise regulated industries.

Speaker 1 8:08

And , and that scalability component. How many different tokens do you guys support, and how many chains do you guys support

Speaker 2 8:16

Tokens? Uh , Scott's the limit. So the

Speaker 1 8:18

Limit , so the numbers changing every day , I'm sure. Right? <laugh> , I'd ,

Speaker 2 8:20

I'd say sky's the limit. I mean, we work with wall providers. We work with dxi. Uh , I , I think it's in , uh, the tens of thousands of tokens that we support blockchains. We support probably 60 to 70 blockchains. What what we do is we don't, we don't go for quantity of blockchain supported. We go for quality of blockchain supported. And what, what that means is we could go out there tomorrow, hire a third party data provider and say, we have coverage for another, you know, 40 blockchains overnight. But , you know, that's not how we do things. We wanna make sure that we have the complete and accurate coverage of that data. We want to take the time to index these blockchains own the data ourselves. So if there is a problem with the data, we could help work with the client in fixing that data. Uh, because if not, you're relying on the third party data provider. And that third party data provider probably hasn't built their, their data infrastructure from the mindset of doing tax and accounting. So that's how we've built in the , you know, the support where, we'll , we also have the view of, you know, working with 450 great companies, what blockchains are actually important and what direction should we be going? Because if they're operating on these blockchains, we should have interest in that . If not, you know, there , there's startups doing great things on obscure blockchains. That's not where we're gonna do best. We're gonna do best with, you know, where the, where the mainstream is going , where these big companies are, are working with what blockchains they're finding interesting. So, so that's how we're, we're moving ahead.

Speaker 1 9:49

And I think that's, that is , is critical to the growth, right? Like you said, you can go overnight and, and scale up quickly, but it wouldn't be to the quality and level that crypto maintains and, and wants to maintain going forward. Right. That's so you guys are conscious of, that's right . What chains we're choosing, where we're growing, where we're projecting our efforts towards and, and what makes the most sense to sustain that growth. Which I think is a good segue to, to one of my next questions I wanted to get to of overall just managing a crypto software cannot be an easy job, right? Just based on where the market's going, how quickly technology is changing. I'm curious just to pick your brain on, on how does the company keep up with the ever-changing landscape of, of crypto itself , um, and making sure you're providing the most relevant products to the market?

Speaker 2 10:37

Yeah, sure. I, I'd like to just go back to, it's our client base. It's, it's these big, very important companies in the ecosystem. It is working with them that they, we've onboarded with them because of our capabilities, but it's maybe something that they're building. It's something that they're going into that they raise our awareness for, where we could then put that on our roadmap . If we just stuck our finger in the air and made assumptions of saying, we think this is gonna be the next biggest thing. It might not, it might not really work well. Like if we, you know, went all in on NFTs without really seeing, you know, NFTs clients come on, NFT clients do well financially, you know, we'd probably be in a worse spot now where we put all our eggs in our basket into to NFT , uh, adoption. But, you know, we, we didn't, we, we've seen where the market's going, and a lot of that's driven from the clients that we have. I , I think a lot of it's too, of the direction we're moving is, is a lot of the regulations that have come on board for all these companies. So that helps drive a lot of the infrastructure builds that we have in making sure that we can continue to support these regulated industries as best as possible. Now where we don't , we don't support it extremely well right now, but it's, it's considering the fiat aspects as well. 'cause a lot of these regulated industries, they work a lot with fiat and in order do to the reporting, you know, for the reg reporting needs, it's possibly integrating into fiat one day. Um, you know, getting integrations into the bank accounts, having reconciliations into these bank accounts that's down the road. You know, we wanna stay laser focused on what we do best, but you know, as these companies come out with bigger needs, instead of having multiple SaaS platforms that are helping them support these needs where they're combining all the different data and reporting, you know, we will ultimately be the end all , be all source for these regulated industries and supporting all aspects of their, their reporting needs.

Speaker 1 12:36

Yeah, and I think that's great to have on the roadmap , right? Because I think all of us are so inundated with different softwares and I gotta go here for this, there for that. So kind of having that one stop shop of everything being fully integrated and seeing a one picture portfolio of, okay, how's the financial position of my company doing? And it's log into cryp crypto . But I mean, looking at, at today's software package, how is the integration looking to ERP systems, right? So I almost wanna simplify it to our listeners of how easy does crypto speak to your current ERP system?

Speaker 2 13:11

Yes . That's a good question. 'cause we, we started off by saying we're a sub-ledger. We're what sits before the general ledger. Now the, the main integration between the two systems that we have right now is communicating the chart of accounts. It's making sure crypto fully understands the chart of accounts within the ERP. So all the mapping, all the rules, all the brains of how these different transactions get into the general ledger can live within crypto. Now, at first we thought moving a transaction level detail into the general ledger would be helpful. It's become less impactful, you know, as these companies really scale and grow and have a lot of transactions. Ultimately, building a batch reporting is on our roadmap, but it's not an immediate need because the ability to run journal entries outta crypto and upload them into your ERPs journal upload tool, it'll take a minute out of your accounting team's day . So having that direct integration where it is feeding and batching reports from crypto into your general ledger, we're not doing that yet. But what , what that gives the end user, the capability to do as well is, is to really look at what crypto's giving you, download the reports of what crypto has, where you could then upload that into your ERP through your journal entry submission there. So at the same time, like having a batch coming from crypto into the ERP, in a way, you need to trust that the data or the support behind that entry is gonna live within crypto . But in this , uh, sequence, you know, you're , you're including the ERP or the , the , the crypto support within your ERP. So if you ever have to stand up to an audit, the reports are right there from crypto. Yes, you could always go back to crypto, but the idea is that we're helping you get through these audits as seamlessly as possible.

Speaker 1 15:08

So when, when you at the click of a couple buttons, and in that one minute timeframe is that, that batch, that attachment similar to an invoice for a vendor, right? All of that is grouped in that journal entry already for whatever's being recorded. Yeah . So it's like you said, all living in QuickBooks or NetSuite or Zero , or whatever your ERP is, but all of that is seamless to the user.

Speaker 2 15:30

That's right. Yeah. It all starts with the onboarding of the transactions. The transactions have different rules based on where it's coming from, going to the different sources , um, the different labels , um, which basically categorize the transaction and what it's doing. And, and through this you map it to your chart of accounts, and once you map it to your chart of accounts, it automates every single transaction that's the same function coming from the same source or the same volumes and mapping that into your ERP through , um, an automated journal entry. So it takes any manualness out of making these journal entries.

Speaker 1 16:04

And that's, that's the key, right? We wanna make sure, yeah , especially when it comes to crypto, just volume of transactions, it's making it as seamless on the accounting folks as possible, right? Making sure it's speaking to your ERP, you're uploading your chart of accounts, but making that process less user intensive. So I think that's , that's right . We're ,

Speaker 2 16:23

That's

Speaker 1 16:23

Huge for software providers.

Speaker 2 16:25

Yeah. We're, we're giving the accounting and finance treasury teams the ability to step back and do more analytical work as opposed to the busy work, as opposed to figuring out where they fat fingered a number in the journal entry or where they debited or credited, mismatched, you know, a debit or credit totally blowing out their trial balance where you could expect and understand what crypto is doing. And you , you could get full transparency into what happened.

Speaker 1 16:53

Yep . Okay. Now kind of looking ahead, so here we are in November, 2024, looking onto 2025, what do you foresee as potential challenges facing crypto and the rest of the crypto accounting industry just going forward, looking into next year?

Speaker 2 17:12

I think it's gonna be like, as we could see right now, it seems like crypto is really getting some mainstream adoption . Seems like a lot of these companies that may be companies or people or the public or the governments thought would be a joke are very serious now. So I think what we're gonna see are increased regulations in increased clarity into what's needed. You know , that's from, you know , right, right now seems like there's regulation from behind. You know, they'll, they'll tell you what you didn't do. Instead of providing clear path forward, I think we're gonna get a better clear path forward. So companies know what to do once they know what to do. It's our job to help automate these controls or reporting requirements that they need to do or helping them with segregation of assets or clustering, et cetera. So I think there's gonna be a lot of change in, especially in the us , the regulations. I think other , um, nations have done a better job. I mean, I spoke about Vara Amica before. That's a great start. There's probably a lot of reiterations to go and understanding of like what that end reporting looks like and what it looks like from a streamlined perspective for these companies. I think as we go through, I think, I think a lot of the technologies that are gonna be built, meaning , meaning different blockchains, L ones, L twos, I think we've been through a lot of the learning curve there. I don't think it's gonna be a huge blockade moving forward. Um , I think we also have set in place, you know , some really solid foundations of what's gonna be used going forward. Does that mean, you know, a newcomer's gonna come that won't, you know, dominate the space? No, but figuring it out quickly won't be hard either. So I think that on top of that, it is, you know, working with companies now that they have 120 million transactions per year, what happens when that goes to 5 billion transactions per year? Which is very possible, you know, in 10 years when like Aex is the main source of everyone doing their trading. 'cause they're now comfortable with the , you know, the , the Web3 activities. They're comfortable going onto a unis swap versa , Coinbase, and dealing with these sheer transactional volumes that are happening on chain and being able to make sure that the technologies you've built now are gonna be scalable for, you know, the extreme future. So I think that is the other level. And then just the , the complexities of, I think companies are constantly gonna help try to figure out where companies could build yield with, with assets that they have, you know, different types of , uh, defi activities. Right now, staking is not an , an easy thing to solve. We're starting to see a lot more need for staking. Um, so we're putting a lot more resources to that. We figured out a , a good, good number of chains, but we're gonna add more to that. So that, that's an example of, you know , over the past six months where we've seen the industry move where a lot more companies, a lot more enterprises for that fact are, are staking their assets. Companies are trying to find additional yield. Um , so it's maybe new aspects of this, which aren't as easy to figure out from an accounting perspective because staking is easy really, if you think about it from a cash perspective, but an accrual perspective and having that transparency into how much are you earning every day? It , it's a lot more complex. And these blockchains are all different. Staking Ethereum's much different than staking Solana behind the scenes upfront . Short seems like it's, it's all the same. But yeah , this is way above my , uh, you know, experience as well. But you know , these devs in our tech teams, it , it takes 'em a long time to, to figure out these different aspects. So I think that's the other thing where that's maybe the, the unknown of the difficult piece to solve right now and where it could go in the future.

Speaker 1 20:59

Yeah, I think the , the two things you hit the nail on the head, one is on the regulation front where there was a period two to three years ago where I think the US was in potential jeopardy as a lot of companies were fearing potential regulation coming down the pipeline, and companies were looking overseas, offshore, moving their entire businesses and operations. Have some , I'm glad we , yeah, I'm glad we didn't get to that point because , uh, it would've been very, very torturous for US businesses and operations here. Um, and we wanna keep the innovation on soil. So , um, I, I'm , I'm very excited to see where that's gonna be. But the segue you made there was, companies want to be compliant. They want to know what the regulation is. And it's been such a gray area for so long that we're hoping to get some clarity, hope. We're starting to see with the FASB guidance last year on the fair value standard, we've had clarity from the tax front on the IRS component. They released guidance years ago. But just starting to see companies wanting to be regulated, wanting to be compliant in the right way and having that regulatory clarity to be able to do that, I think is just a , it's a win-win for everyone at the end of the day, as opposed to just operating in the gray air , doing what you want, and then they come, the SEC comes down on you or whatever regulatory body and just says, that's not how you're supposed to be done, but doesn't give you a path forward. Yeah,

Speaker 2 22:18

That , that's a great point. 'cause there has been great advancement, especially from the fsb , um, where they moved extremely fast. They heard mm-hmm , <affirmative> the public loud and clear on what they wanted for tax. I think it's, it's super helpful as well, you know, hearing that, you know, there's, there's two really acceptable ways to do your, your tax accounting, you know , fi o by wallet or spec id . So it , there , there , there has been great moves and that's where we're doing a lot of work on that stuff too. 'cause all of our clients need to adhere to all these , uh, standards. So they look to us for the solutions. They don't, they don't try to figure 'em out themselves. So yeah, that , that , as soon as we see changes in these regulations, you know, we we're just go, go, go and trying to solve it.

Speaker 1 23:02

Yep . Yeah, it's all about that fast mover advantage. So I, I , I guess my last question, I just wanted to pick your brain on advice to companies, advice to CFOs or CEOs who are , are either getting into digital assets and moving onto the balance sheet or thinking about it , what would you recommend just being in the space for a while , understanding some of the complexities, working with companies, right? Onboarding a software provider. When does it make sense to do that as you continue to scale up? Just curious your thoughts on, on where companies are gonna be moving towards, especially with where we are today with prices kind of just continuing to go up today. So <laugh> hopefully it stays that way, but I think that's gonna help draw more and more mainstream folks into the space that aren't traditionally understanding of how do digital assets work? What is blockchain technology, kind of that crypto 1 0 1 level stuff where more and more companies are putting it on the balance sheet just as an investment, like you mentioned yield earlier. So I think that's gonna be a big use case as companies kind of transition maybe out of your traditional investments, your securities , maybe throwing some of that into a Bitcoin or an Ethereum for investment purposes.

Speaker 2 24:09

Yeah, so starting with companies that don't have crypto on their balance sheet, I think, I mean, I think Michael Sailor , everyone thought he was crazy back in the day. Everyone thought he was a dreamer and now they're very jealous of where MicroStrategy has gone and what he's doing by simply going out and buying Bitcoin. So I think we're gonna see more of that. I mean, it seems like the US is gonna be doing it soon. You know, they have a bill out there to buy a million Bitcoin over the next five years. And if and when that passes, other nation states will do it. And if other nation states are doing it, why wouldn't every corporation hold a little bit of treasury? So it's kind of like a game theory where why not do it? Sure. Yeah . You could limit your risk, you could hold treasuries, you could be safe, but you could also, you know , have a strategic investment or strategic treasury, you know, on your balance sheet to do this. But now let's say you have it on your balance sheet. I think being able to track crypto at a very granular level in a system is super important. So we talk to companies that are in spreadsheet still. They're handling massive volumes of Bitcoin. The infrastructure is fairly simple. Like, for example, mining companies where they're earning rewards, where they're sending these rewards and they're cashing 'em out, or they're holding them . 'cause a lot of these mining companies have had the , uh, huddle mindset , uh, recently. So regardless if you huddle or if you're selling, I think it, it's more beneficial having a system in place because there's so much at stake with keyman risk, with spreadsheet corruption, with where you're maintaining these, you know, if you have an angry employee that leaves and just, you know, devastates every file that you've had, there's so much at risk in not understanding like what happened historically. Yeah, you could go to crypto after, you know, it's a disaster and we could figure it all out for you live to date . Sure. Uh, there's always like a disaster recovery that we do. But at the same time, scaling and growing, you know, with your company infrastructure, it's a minor cost just to, you know, feel safe that you understand all the moving pieces from fair valuation to units coming in, going out, your gains and losses, and knowing that it's backed by system, not people. I think it all comes down to people and process. If the process is broken, you know, your results are gonna be no good. If the person you hired is just, you know, he's, he's lackluster and he is , is really not doing his job, your results are not gonna be good. So have a system do it. Automate this, have it sock one, sock two backed where, you know, you could really feel comfortable with your financials. 'cause that's the CFO's job. The CFO's job is to make sure the financials are sound and accurate. He's signing off on 'em . He's also, you know, there to make sure that the future of the company is , is sound. So as they grow, as they scale, they're not just throwing more people at the problem, they're throwing a solution at the problem. The solution would be crypto to handle all the back office infrastructure.

Speaker 1 27:14

Yeah. And I think we're, we're going to continue to see more and more so understanding, right, doing a little education and understanding how risky this potential asset class is. Because like you said, they're under understanding infrastructure of a wallet, right? Do you want single sign on ? Do you want single user? Do you want two fa All of these little questions you wanna make sure you have hashed out before you onboard any type of provider, any type of digital asset onto your balance sheet. Just making sure you have the right roadmap , because like I said, I I , I potentially foresee more and more companies just taking that avenue, following the Michael Sailors of the world. Not as much, but just wishing and hoping and trying to play a little catch up .

Speaker 2 27:54

Yeah, there are a lot of 'em out there and I think if they haven't already, they're gonna start thinking about it.

Speaker 1 28:00

Yep . Yep . Well, Jeff, that wraps up today's episode. It was a pleasure catching up today. I appreciate you joining us. Um, where can listeners go to learn more about yourself as well as crypto ?

Speaker 2 28:12

Go to crypto.co . CIP tio.co . We have blogs up there. There's tons of content around, you know, what I've talked about, companies we work with, things we're doing probably the best spot myself. I try to give some decent thought leadership on LinkedIn. Uh , but again, a lot of that translates over to what's already on crypto .

Speaker 1 28:33

Yeah. And I , I definitely want to say it's definitely worthwhile to listeners to check out all the technical accounting memos and research that you and the team have done on Stable Coins on the new fair value standard. Really anything that's a hot topic that needs that listeners and folks need to know , um, you guys are really on the forefront of that. So I highly recommend folks checking that out. Um , a lot of that technical analysis that you guys are doing , um, has been great for the , the market. Appreciate that, mark . That wraps up another episode of Cryptonomics. So thank you everyone for listening.

Speaker 2 29:05

Thank you, mark .

Speaker 1 29:06

All views expressed in this podcast by Mark Eckley or his guests are solely their opinions and do not reflect the opinion of rhythm . This podcast is for informational purposes only.