I read this 111 page Web3 CFO Guide so you don't have to.
Request Finance published their Web3 CFO Guide recently where they interviewed 250 people. And I happen to be the crazy one to dedicated a newsletter to it.
Hi there,
I read the 111 page Ultimate Web3 CFO Guide by Request Finance so that you don’t have to. I then talked about it here. I might be one of the only content creators on the planet that would do this.
For the financial professionals I carry in this newsletter, there are a lot of familiar topics such as expense management, payroll, technology, controls, and processes you are familiar with.
What you will not be familiar with is:
The depth of consideration over wallet technologies
The depth of consideration over establishing banking relationships, and non-banking financial institution
On/Off Ramp processes and controls
Token Allocation (Stock Option equivalent)
Thankfully, the guide I read offers insight there.
Cheers,
Allen
p.s. if you want to use Request Finance, here’s my referral link. <3
Past Publications
Sections You Can Skim To
Who is Behind the Guide?
What’s in the Guide?
What’s Missing from the Guide?
Who is Behind the Guide?
TL;DR: Request.Finance interviewed 250 finance and operations leaders at Web3 companies.
Request.Finance published “The Ultimate Web3 CFO Guide” recently providing insight for all financial practitioners into the rapidly evolving industry. They interviewed 250 finance & operations leaders at various Web3 companies around the world.
If you aren’t familiar with Request.Finance, they are an all-in-one finance solution for Web3 Businesses. No, they aren’t sponsoring this. Their CFO, Jean-Baptiste Chenut, gave a convincing take on why I need to read this - so here I am.
If you’re interested, you can register for your own free copy here.
What’s in the Guide?
TL;DR: A lot of great stuff; but the new stuff is in the legalities of banking with crypto, on/off ramp payment gates, and Global Payroll for a Remote Crypto Entity.
There are 8 chapters - I’ve broken down each one and provided commentary and appropriate page references to more tactical content.
Chapter 1: Challenges Facing Web3 CFOs Today
Learning Cliff is Exponentially Steep, with 99% of CFOs having no formal onboarding when they started
Difficult and energy intensive to keep up with new tech, apps, and protocols
Lack of tools in all directions for crypto
I’d also like to add that almost all Web3 companies are most likely understaffed.
Chapter 2: Roles & Responsibilities of Web3 CFOs
CFO roles are loosely fluid and now cover operations, compliance, and strategy.
76% of Web3 CFOs estimate that the demand for finance, accounting, tax, and audit professionals will grow over the next 12-24 months.
Chapter 3: Crypto Wallets & Custody
There’s a lot of tech to consider.
A CFO’s key business requirements on wallets will be around access management, spending policies, limits, and permissions. In addition, setting up wallets for specific purpose, as opposed to general catch all’s, are a must.
Privacy ZK blockchains will be a wedge in the process, requiring the CFO to implement controls and processes that both accommodate private transactions, while concurrently meeting the needs of financial reporting.
Cyberattack through smart contracts, phishing, and fraudulent invoices are a thing. Business Engineering Compromise, which is tricking employees at a company to do things, represent 7% of phishing attacks yet $26b was lost in the last 4 years.
Page 24 to 35 has a list of tactical questions around custody, operations, governance, and financial reporting & compliance, as well as best practices as it relates to wallets.
Chapter 4: Fiat Banking
This one is incredibly insightful b/c of the complications in setting up legal entities and doing business with crypto with traditionally regulated entities.
Going bankless is extremely hard given the demands of investors, vendors, employees, and global regulation.
Opening a bank account and declaring your business deals in cryptocurrencies, will create a whole bag of problems. And almost all global banks aren’t truly crypto-friendly as the bank risks losing their own licenses if they don’t meet their regulatory requirements.
High Risk: Banks consider crypto-related business high risk.
Risk of Shutoff: While blockchain is global, banks are not and have been noted to close down operations by geographic region due to lack of economic viability in that region. (Example from Nov 2022)
Most CFOs setup a bank account under a Special Purpose Entity registered as a consulting or tech company - this entity serves the fiat needs of the org
Page 39 provides a common illustration of legal entity setup
Diversify and hold fiat across multiple, uncorrelated banking providers in such a way that when one entity were to “shut you off”, they have no tie in to force the other unrelated entities to shut you off as well.
Relationship Screening: Look for NBFI/Bank’s core banking partners or other related parties, and determine that if they go out of business / cut you off, it doesn’t impact your companies ability to conduct business through fiat.\
Example: Don’t be like Hodlnaut that got pwned $189.7m due to the collapse of Terra….and then got wrecked against by the collapse of FTX where 71% of its assets were.
If you combine the issues of time related to liquidating massive swathes of crypto assets to fiat, and then making the necessary transfers, I can tell you the time it takes to move money is considerably longer than you would expect.
Chapter 5: On/Off Ramps
How do you move money between crypto wallets and bank accounts? It’s painful.
Use a Central Institution’s Stablecoin: You go from fiat → stablecoin → Crypto asset ; this requires having a business account at a centralized institution and also buying into their stablecoin asset.
Use a Centralized Exchange - but risk being debanked (locked out), compliance roadblocks that slow transfers and processing, and counterparty issues such as liquidity & reserve faults of said entity (aka they don’t have the money you deposited them anymore).
Use On/Off ramp service providers - Known as OTC (Over the Counters), you essentially use another entity to manage the acquisition or liquidation of massive amounts of crypto assets over a period of time, with the desired end currency paid to you.
Page 52 to 56 offers additional best practices on payment corridors, bad treasury practices, de-peg/liquidity risks, and uncorrelated diversification holdings.
Chapter 6: Crypto Payments
Payroll & Expense
Lots of variables: In addition to accepted blockchain methods, a CFO needs to understand the company’s billing needs and determine how it likes to receive invoices, and how it will issue invoices - essentially you have to consider speed, cost, reach, and interoperability but also blockchain integrity and reliability.
Global Payroll: When it comes to Crypto Payroll for global teams, establishing localized entities that are the “Employers of Record” is crucial - this joins the other end of the issue, which is what are the applicable labor laws of that employee’s jurisdiction.
Token Allocations are the equivalent of Stock Options, but have some fundamental differences from stock including valuation, instant liquidity, lack of window restrictions, and no dilution.
Page 79 to 83 has additional best practices on operational efficiency, processes & controls, and compliance & reporting.
Chapter 7: Treasury Management
How and where will crypto be stored, and what strategy is applied to each balance?
What wallet(s) are cash-in for fundraising and operating revenue
What wallet(s) are cash outs for SG&A and Payroll
What wallet(s) are for savings and capital preservation
Page 87 to Page 91 offer best practices across capital preservation, liquidity, and income.
This is on top of regular fiat decisions such as to hold bonds and debt.
Chapter 8: Financial Reporting & Compliance
The usuals.
Financial Statements: Duh. There’s a financial statement example on page 94 that’s representative of a crypto company.
Proof of Reserves: 3rd party verification that assets = client funds, typically tailored at deposit-taking institutions (defi platforms).
Handy Tables:
Page 97 - Accounting Standards: Is Crypto cash, inventory, a financial asset, or intangible asset? How does stablecoin drive a wedge in that? (Page 97).
Page 103 - There is a cost basis table on Page 103 that articulates the different types of fees and the various kinds of transactions that incur those fees.
Page 104 - There is a handy timestamp/UTC table of all the popular blockchain explorers and centralized exchanges on Page 104.
Page 106 to 108 provide additional best practices on technology, financial strategy, responsibility assignment, and financial statement review.
What is Missing from the Guide?
TL;DR: Missing ERM, TPRM, Salary, Investment Issues, Benchmarks, and Individual CFO Success tips.
Traditional Topics
I enjoyed the guide and it offered new insight on to true banking issues of globally operating companies.
Compared to other financial thought leadership I’ve read (wow does that make me sound un-cool), here’s what I found to be missing:
Enterprise & Risk Management - to all by SOX brothers and sisters, there isn’t anything for you here. What’s a Crypto RCM going to look like?
Third Party Risk Management - completeness & accuracy that assets held at various companies including OTCs and exchanges are as they say they are (this is touched on halfy through “Proof of Reserves”, but that focuses on a centralized institution layer. What about businesses such as market makers and OTCs?
Salary/payment structure of personnel that would report to CFO, and the CFO’s salary as well. It’s a niche industry, shouldn’t it be paying more for talent above all else?
Investments in other projects and companies (or investments into our own) and where legal documentation such as token purchase agreements collide. I suspect many CFOs will be reading their first token purchase agreement as they start said job.
KPIs - What are the core KPIs and OKRs of a CFO and the different divisions? If a CFO could make any dashboard to monitor the company’s health, risk, and growth - what are they on?
Cross Functional Relationship - who are the kinds of people a CFO must definitely have in their corner at all companies? What about internal audit?
Individual CFO Success - How do we augment a CFO as an individual so that they are consistently successful? Perhaps virtual assistants / Chief of Staff / Teaming models? Perhaps a coach?
Insights and Benchmark into other CFO Shops
Financial Statement Closing Process Benchmark- how long does it take for companies to close their books? It’s a scary answer to be honest.
Top 3 or 5 moves CFOs have made in their first 100 days
Top 5 mistakes CFOs have made in their first 365 days?
My comments above are not to disparage the published guide. They are more of “a wishlist of future topics”.
This guide is wonderful and provides a great amount of tactical considerations in technology areas - areas I expect onboarding CFOs to not be as upskilled as they’d wish to be.
If you’re interested, you can register for your own free copy here.
Just be warned. It’s 80 mbs. It has poor compression; I actually think they are images pasted on to a page - or my PDF viewer is junk.
Enjoy!
p.s. if you want to use Request Finance, here’s my referral link. <3