Crypto-Tokens issuance

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Andreas Kyriacou
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Joined: 13 Dec 2019, 13:31

Crypto-Tokens issuance

Post by Andreas Kyriacou »

Hi to all,

I would appreciate your views.

A client has created a P2P Exchange platform for cryptocurrency trading which will target not only professional traders but also normal users who just want to exchange their coins for fiat or for other cryptos in a quick, cheap and efficient way. The idea is that every person in the world would be able to access, buy and sell, their favourite cryptocurrency by using any payment method available.

As a source of financing this project, the company has initiated an ICO(Initial Coin Offerings) and issued the so-called BTV tokens which are described in the Whitepaper as follows:
*The BTV tokens will be blockchain assets having value which can be received and sent to any person with a valid wallet address.
*The BTV tokens will be available for trading on various cryptocurrency exchanges. If a user would like to pay Platform’s exchange fees by using BTV tokens, the average market value of the BTV tokens will be applied for payment purposes.
*Professional Traders who will pay the commission using their BTV Tokens will pay 50% less commission fees than the current competitor exchanges. Traders without BTV Tokens will pay 20% less commission fee, payable in any cryptocurrency.

The Company issued a specific number of BTV tokens. The problem lies with the unsold Tokens. The Whitepaper is saying that If, after the end of the ICO, any BTV Tokens remain unsold, the Company may, in its own discretion, decide on whether
(i) to “burn” them or
(ii) to keep them and sell them in the future if the funds collected through the ICO are highly insufficient to complete the Project. The Company shall have full discretion as to the price and the terms and conditions at which the Company will sell such unsold BTV Tokens to third parties.

If the Company decides to keep the unsold BTV Tokens and sell them in the future, all investors who purchased BTV tokens prior to the end of the ICO will receive a portion of the unsold BTV tokens. More specifically, each investor will receive a portion amounting to 400% of the BTV Tokens owned by him or her.

The management wish to capitalize the unsold tokens at fair value as a debit entry into stock and the credit entry would be in the reserves. Management want the reserve to be one that will be used for bonus shares in the future.

In my view these are utility tokens and I am not sure whether these can be capitalised.
- I am thinking initially the Asset definition and that i cannot tell whether these are resources that are controlled by the Company (Since clause to provide to existing holders exists) and in addition no cost can be found (I believe that Fair value) cannot be considered cost.
- Also even if asset definition is met (lets say) I don't think that the Company' activity is to hold these Tokens for sale in the ordinary course of business and also the Company is not established as a broker-trader of cryptocurrencies.
- I would say that the definition of Intangible Assets is more likely to be met (identifiable non-monetary asset without physical substance.) but still no cost exists and i am not sure if buying own tokens in substance satisfies this definition.
- Again maybe we can say that the Company is holding these on behalf of clients since it is stated specifically in the Whitepaper that if Company decides to keep the unsold BTV Tokens each investor will receive a portion amounting to 400% of the BTV Tokens owned by them. If this is the case then maybe the general guidance in IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, in developing an accounting policy for such assets would be the case???

Does someone has any opinion???
JRSB
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Re: Crypto-Tokens issuance

Post by JRSB »

I have no idea but I do know that Big4 have publications which touch on ICOs and related.
Andreas Kyriacou
Posts: 46
Joined: 13 Dec 2019, 13:31

Re: Crypto-Tokens issuance

Post by Andreas Kyriacou »

Thank you for the replies! I have seen those but it seems that they provide more information about the acquirer and not the issuer. In any case thanks anyways!
JRSB
Trusted Expert
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Joined: 01 Mar 2020, 01:10
Location: UK

Re: Crypto-Tokens issuance

Post by JRSB »

If those documents don't touch on your case then you're probably in the realm of designing a suitable accounting policy based on the best match for the substance?
Leo
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Joined: 05 Apr 2020, 22:31

Re: Crypto-Tokens issuance

Post by Leo »

One of the reason the crypto currencies are not considered as a financial asset under IAS32 is that it doesn't give the holder a contractual right to receive cash or another financial asset.

What contractual means here please ?
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Crypto-Tokens issuance

Post by Leo »

Thanks Marek, I was looking for this !

Just one more question, so if a company buys some shares of another company, it's considered having a contractual relationship. But If a company by cryptocurrencies, it's not considered having a contractual relationship.

I understand that when a company buy some shares on wherever it is, there is a contract, like record of transaction etc...

I have never seen in practice what happens when a company buy crypto currencies, is it because it doesn't have any materialised paperwork, that it's considered not having a contractual relationship ?
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Marek Muc
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Re: Crypto-Tokens issuance

Post by Marek Muc »

There is a contractual relationship, but you need 'contractual right to receive cash or another financial asset'

The thing is that holding crypto assets doesn't give you a right to receive cash or another financial asset, as per definition:

https://ifrscommunity.com/knowledge-bas ... cial-asset
Leo
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Joined: 05 Apr 2020, 22:31

Re: Crypto-Tokens issuance

Post by Leo »

Thanks, I understand it better now !!!

But a crypto, I can sell it whenever I want, isn't it a proof of contractual right to receive cash ? What's different with shares ?
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Marek Muc
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Re: Crypto-Tokens issuance

Post by Marek Muc »

Shares are equity instruments and they are a separate part of the definition of a financial asset (see my previous link).

Sure, you can sell crypto to someone else. You can also sell a painting or a car. But do you consider a car a financial asset?
Leo
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Joined: 05 Apr 2020, 22:31

Re: Crypto-Tokens issuance

Post by Leo »

that's very helpful ! thanks a lot
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