Australian blockchain marketplace startup CanYa is in the midst of developing its own cryptocurrency-specific accounting software after finding itself in a “accounting and compliance hole” after its initial coin offering (ICO).
CanYa offers a blockchain-powered services marketplace where individuals (such as gardeners and crocodile wrestlers) can offer up their services and receive payment in cryptocurrency — either mainstream coins like Bitcoin or Ethereum, or CanYa’s own CAN token.
The startup raised a whopping $12 million — or roughly 12,000 in digital currency ether — in an ICO in January, making it Australia’s second largest ICO (for now) and providing the funds to skyrocket the company’s growth.
But in the wake of the capital raise, CanYa co-founder John-Paul Thorbjornsen says the team is struggling through a number of compliance issues related to record-keeping and paying their employees.
While these issues sound part and parcel for a Corporations Act-compliant, rapidly scaling startup battling growing pains, the murkiness increases tenfold when cryptocurrency is thrown into the mix.
“Like all Australian companies we have to keep records of all our transactions inside and outside of the company, but we’ve been spending a lot of our 12,000 ether raise, and most of those transactions have been in crypto,” Thorbjornsen told StartupSmart.
“And we were clear with a lot of our employees and for a number of our external partners like PR firms that they would be paid in cryptocurrency, or a mix or cryptocurrency and dollars.
“We were pushing back the problem, making all our records in a Google sheet, and when we started moving a lot of our contractors to employees after the raise, almost all of them still wanted to be paid in crypto.”
Constant compliance a headache
This is when the depth of the hole became quickly apparent to the CanYa team. With 15 direct employees and 10 more indirect contractors, managing the accounting and compliance for their payments became a massive overhead for the company. Each one needed to be vetted, signed, and verified, along with the regular requirements involved with superannuation payments and PAYG instalments.
To pay a single employee a fortnightly wage, the team would record four to five transactions for each, having to continually compare against the ongoing spot rate of ether compared to the Australian dollar.
Capital gains tax also came into play, with each record of a payment to an employee having to come with a record of the capital gain, or loss, CanYa had made on the cryptocurrency.
Thorbjornsen says this was one of the biggest headaches, as the company began collecting cryptocurrency for the project when Ethereum’s price was in the $400 range, and continued receiving it as it shot to nearly $2000 and then retreated to $1200.
“We’re striving to maintain clean records but we’re in way over our head, and we’ve been trying to manage this all on a Google sheet,” he says.
Options such as accounting platform Xero were “completely inappropriate” for CanYa’s needs, and other crypto accounting software was too feature-light for a rapidly growing blockchain company. On the verge of almost giving up and liquidating all their cryptocurrency assets into cash, Thorbjornsen and his team struck out and decided to take things into their own hands, literally.
Get SmartCompany FREE to your inbox every weekday
“Our overarching philosophy is to promote the everyday adoption of cryptocurrency, and we realised we can achieve that through multiple different aspects of the company,” he says.
“As a company that’s just done an ICO we don’t want to give up and say it’s too hard to manage crypto accountings, so we sat down with our team and decided to build the software ourselves.”
Despite still working on the CanYa platform, Thorbjornsen says the project is well within the team’s resources and development will start next week, ahead of a working alpha product completed by mid March. He says it’s an imperative for the team to get done from an efficiency point of view, noting the burden the current compliance is putting on the company’s functionality.
The reality of raising millions on the blockchain
The problems laid bare by CanYa reveal the stark reality of often glorified ICOs when startups maintain their crypto assets, not to mention the role of regulation when it comes to new ways to pay and employ workers.
Thorbjornsen says the team is also concerned about how the situation is perceived by the Fair Work Ombudsman, as the Fair Work Act only recognises the Australian dollar when considering things like award rates and minimum wage, potentially posing problems for employees who want to be paid completely in crypto.
“We knew these compliance issues were coming, but we never thought to not do an ICO just because we were scared of compliance,” he says.
“But when you’re grinding away at the coalface and these problems come up, you have two options — liquidate back into cash and go back to the easy old way, or grit our teeth and keep going with our crypto-centric approach.”
CanYa is also proactively communicating with regulators such as the Australian Tax Office and the Australian Securities and Investments Commission in relation to its tax and compliance status, wanting to be transparent as one of the first operating in the largely unregulated cryptocurrency space in Australia.
However, Thorbjornsen says he’s also putting forward a “reasonable and well-argued” push to change how crypto is considered for companies using it to pay their workers. He wants regulators to look at concessions such as recognising it as a value transfer for tax purposes, and also how capital gains are applied.
“We want to look at reasonable ways to change how we account cryptocurrencies when considering things like the volatility of the currencies. For example, the first in, first out principle is not appropriate for crypto,” he says.
“We’re working with the regulators and being very public with our solutions. This is a brand new industry, which is awesome, and we have the opportunity to leverage our position and make a difference.”
The author of this article has a small stake of CAN tokens.