KPMG's Crypto Strategy Reveals What's Coming Next with Tony Tuths

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and digital asset strategy. Tony, great to have you, Thanks, Tony, great to be here. Thanks for me having me here today.

from and your professional background.

never really looked back, you know, at KPMG. I mean it really took off probably around twenty seventeen, and we have ever since that time. I'm invested a large amount of time and money into the practice. As you might imagine that this scope of people out there who are very well versed in accounting, tax and advisory, which is our core functions, that also are very well versed at crypto as not a lot of people. So there's the fight for talent is it is fierce out there, and

you have to really know your way around. And so we've done a great job of acquiring that talent here. So it's been very good. That's amazing.

this business, I'm going to age myself. But it was that time where derivatives were becoming very big on Wall Street, and the derivatives market, much like the crypto market today, at that time, didn't have a lot of rules for so we were trying to play not just in tax but also with the SEC the CFTC, you know, basically going by analogy, Well it kind of looks like this, it kind of looks well, maybe we could treat it like that. And then slowly but surely we got some

rules about that. And so I do got this large financial product background, and so when crypto questions started to come to the four, you know, people pointed to me and said, well, you know it should be similar, why don't you take a crack at it. So I did start getting into it, but that was really from a kind of tax wunk type of view. And then finally, like I said, around twenty seventeen, things really started to take off. I started to spend a lot more time

with it. I started to invest in it myself. I should have invested in twenty fourteen, Tony. That would have been much better and I wouldn't be working today. That's another story, so but it did that. So basically, maybe twenty seventeen the aha moment went off and you know you basically and by the way, shame on me. I should have recognized in twenty fourteen because I was focused on crypto when I really should have been focused on blockchain technology. Right, That's what I should have saw as

what's coming down the road. Forget crypto altogether. If you look at our core financial services companies, I don't care if it's asked at management, it's banking, it's payments, whatever. It's all about distributed ledger technology and how that can help that all those traditional businesses function at a much more efficient rate.

put the card before the horse, where people are so focused on the token they forget guess what. The token wouldn't exist if there wasn't a network, a blockchain that's actually functioning that you can build on. Right, and we often, well majority of people look at the technology as oh I can get this token, but they're missing the bigger picture.

They're missing the forest for the trees that the network that it's working globally twenty four to seven, that you can build on to change the way people transact with each other and much more.

and they're going to run everything on blockchain. And you know, for some of the things that they do, if you think about it, you know, we're most people everyday people. They think about stocks and bombs, Well, those already trade pretty fast. Uh, there's room for improvement for sure, and they will be tokenized eventually. But think about the things that don't trade fast, the things that trade clunky, and I'm talking about you know, bank loans, you know, clos

private equity interests. You know, try moving those you know, those stack of documents takes weeks. You know, if I can reduce that to seconds and I can put it in a form that maybe I can post up some third party is collateral for a loan. I've just introduced liquidity where there was none. So you know, for the traditional finance players, that's the big deal. Crypto is nice to have, but that's not the prize. Yeah.

how KPMG as well as those clients are viewing the technology or where we're at in the timeline. I guess is it simply a proof of concept or they recognize, hey, this is the future we need to start building. It's as if that, you know, when folks had that moment with the internet, guess what, we got to start moving our business online as well to get exposure.

know exactly where it's going. We're not quite there yet though, because there's some implementing rules that they need, because most of these entities that we're talking about, and at least in the financial services sphere, they're regulated, highly regulated, and so until each of the regulators clarifies what they're able to do with blockchain, it's slowing it down. So we're still we're trying to run, but our feet are still

in the mud. But I think that's probably twelve to eighteen months of clearing up the mud and getting us, you know, really getting some traction here.

the service providers kind of need that. We even do inside the digital asset round with the stable coin asset reserve attestations things of that nature. So that's where the audit at testation stuff is coming from. But even in tax, I mean, we do tax consulting and tax compliance for sure, but even inside of that it gets broken out into

smaller sectors. For example, you know, federal, international, state, and local indirect tax, which is your sales tax, back tax, things like that, transfer pricing, valuation, and like I said, for the past you know, eight nine years, I've been hiring people all around the globe, so it's not just the United States, it's a global operation. And I've been hiring people with digital assets, specialties and special knowledge in each of these areas. So if you think about that,

that's a lot of people. And then finally on our advisory side, which is consulting, I mean that's everything from you know, strategy consulting, operating models, compliance and regulatory consulting. Building out and this is a big one by the way. People don't like to hear it, but it's true, building out the B SAAA, M L or KYC. You know, even though you're on chain, these things still really matter.

You still have to you know, get people's information, know who you're dealing with, make sure we're not dealing with sanctioned people and entities. And then finally, as we start doing like real world asset tokenization, enablement and integration become really important. Right because when you look inside pick your largest bank in the world, you'll see like myriad of systems that they have to track all their assets and

do all the operations that they have to do. And now they're doing things on chain and they need to get that on chain information into the legacy system so they can do their regular reporting and everything, or vice versa as the case may be. But that's a huge challenge, and so Advisory Group is doing all that kind of stuff and then of course custody and security huge have

to be able to do that. So being able to get these institutions to be able to do things within their regulatory framework and do them safely and do the reporting that they need to do. All you know, to any stakeholder, whether it's a shareholder or it's a regulator, are taxed. So that's where KPMG is helping inside each of those side hopes. Yeah, that's incredible.

So it's really great that you're helping a lot of firms to do that and there can be more transparency.

and it's doing everything right on its side. So in the end, that's part of what Genius brings as a requirement.

tokens that was those were the big users. But at this point it runs the gamut everything from like the development the blockchain development and app companies, uh, the infrastructure and security providers, you know, the mining companies, the staking providers. Now, of course we have these digital asset treasury companies. They suck up a lot of time, but those are great clients, by the way. Public companies, we love that kind of stuff. The asset managers, both public and private, by the way.

So it's nice that we've been doing public funds outside the United States for several years now, but as you know, right now in the United States we have public funds. That's great, but we also do the private funds, like I said, and then of course banking and payments that's huge. That's a big space for that right now. But it also believe it or not, it routinely now, I would say,

not just spotty, routinely. We are speaking to fortune two point fifty global enterprise type of clients as they start to use some form of digital asset in their own business model. And it is happening regularly.

is an OACD reporting requirement, that's full steam ahead. We've been doing that for a while now, we're doing that today. A lot of the US regulations, believe it or not, even though we hear about them all the time, they're not quite big, implemented yet or on the path to doing that. So we're doing some of that in the United States as well.

nice fortune two fifty companies. So it's it's robusts for sure.

different types of assets internally, because it seems like it's a lot to handle, right, because there's so many blockchains out there, Tony. Obviously there's your top ones like Ethan, Salona and much more. Plus you have stable coins, plus you have tokenized assets, plus you may have NFTs and name coins and all these things. How are you handling all of these differ and components.

We can't you see it, and that's not acceptable. And so what we've done at KPMG is we found that outside tools, it's just too hard to use you'd have to pick up so many of them and keep on top of them, and then of course we'd have to verify that they're working correctly. We said, forget it, we'll build our own. So long ago we built our own

blockchain explore. We call it chain fusion. This allows us to actually just go on chain and you know, we when we have a team of developers that's constantly updating that for everything that we need so that we can see things and do things. It also the the way things are rapidly evolving and that not everything is on the same chain kind of thing also creates another problem

for us, which is for our clients too. For those regulated clients who hold those assets, a lot of them have to hold it in in what's called the qualified custodian. But then what happens is if it's new, the custodian didn't update their system, so the qualified custodia can't hold the asset and they end up having to hold it you know what we call self custody. Auditors hate self custody, right,

it's just too it's dangerous. So you know, we that's something we are all dealing with, you know, as an industry and hopefully we get to a place one day where you know, it's a little more generic interoperability and we don't have those kind of one off problems. Yeah, for sure.

and trying very hard. I mean, one of the things that AI is really cool, but you know a lot of the tools that are out there in the market we really can't use and not a lot of people like us can't use because we have sensitive client data that can't be shared and so and then also the other issue with the large language models is that you know, it's scraping data from things that might not be correct, and so you end up building your own propriet harry type of AI tool. We are not alone in that,

all the big four doing that. Luckily, you know we started early. We've got a pretty good way down. But yes, to answer your question, it's integrated and everything we can do and wherever we can see a spot to add efficiency by using it. Yes, and this is a great actually, as we were just saying, you know, things here move so fast and there's so many new things, and you

try to keep up as much as you can. But I can have AI screwing data from all over the places and synthesizing that for me so that every morning I can get a nice reports and you know, here are some of the new things that you know hit the market today, and you know, basically save a little time that way, and then try to pick out what's really important for us.

are you handling that from a risk perspective? And so AI is really good for that, because you know, you can set parameters for things to trade or not trade, or block trades, whatever the case may be, so that if you're sleeping or something, you know, you can at least avoid a disaster. Yeah. Absolutely.

crypto tax bill and the implications that would have on the digital asset taxation and reporting and much more, because a lot of these things are still being sorted out and we're still waiting here in the United States for concrete rules and for these things to be passed.

So there's three things happening right now. One is the Loomis legislation. Obviously, that's in the Senate. Great there's also a representative Max Miller and Stephen Horsford in the Congress. That's not really legislation. They put out a thought piece on that. It's that they're taking comments on and then they'll put it into a bill. And there's some really

great stuff in there. And then, of course we just had over the past summer, the President's Digital Asset Working Group put out their priorities and you can see each one of those priorities is being acted upon right now, and so all of those have tax components. So yeah, the ones that are in there, I mean, believe it or not, the bulk of these pieces of legislation are like the brick and mortar stuff, like the plain obvious stuff.

I don't have rules right. For example, I think everybody who trades crypto is very well aware that you know, the washstyle rule does not apply to crypto, not because it's a great loophole, it's just when they wrote the rule, crypto didn't exist, so it's not in there. But and so there's a ton of pieces in the tax code like that, where it says when you're reading the text of the statute, it says when you do this with stock or securities, and it's repeated all over the code.

Every time that statute says stocker securities, you can't use that piece. And sometimes that's hurtful, sometimes it's helpful, like in the Lost help So there's a little bit of

fixing that. And so most of these pieces of legislation are just going through and they're taking those little underlying things like for example, when asset managers trade assets from within the United States for people who live outside the United States, we never say, oh, you know, you foreigner, you're all of a sudden the US taxpayer because you had a US asset manager managing your assets. We never

do that. And the reason we don't is because in the tax code there's a safe harbor that says, well, if you're trading stocker securities, that doesn't bring you into the US. Well, it doesn't say that for crypto. So it's a big problem. Now we've worked around it in the interim, but this tax legislation would say, you know, you would just fix that, we'd add that, Yeah, crypto at too, you can't do that. Also, you know, we

all lend crypto. If you trade CRYP, you lend crypto, and that there's a there's a rule that says that lending stocker securities out doesn't cause a taxable disposition. Again, doesn't apply to us, so we've been working around in the interim. But this rule, these rules will fix that. So a lot of good stuff there just brick and mortar stuff, but there's also some very specific stuff for crypto,

which is great. Which is each of these pieces of advice or legislation, as the case may be, they call for deminimous exemptions, which is great because people always said since the beginning of crypto, well, if I go out and I buy a cup of coffee with bitcoin, you shouldn't tax me on the bitcoin. Now, I don't know if anybody is actually using bitcoin to buy coffee anymore. I would use a stable coin. But be that as it may, you do find those that in the legislation

that there is some deminimus exemption. People have also been calling for no taxable gain or loss. If you have to dispose of a digital asset to pay gas fees. They think about it, You know, why are you doing that to me? I had to pay gaspies I was I wasn't trying to profit or you know, from my crypto is just paying gaspees like I had to. So those are in the legislation. That also one of the things that the US did put out some rules a

year or so ago on crypto. It's not the ones that most people think about, though, it's the ten ninety nine reporting. So people just now probably just got their ten ninety nine DA from their exchanges they trade on centralized exchanges. One of the things that maybe got overlooked in that rule was the ten ninety nine DA reporting actually does apply to stable coins, which is weird. Why do I have to report on stable coins because if I sold it, it was I bought it at a dollar,

I sold it at a dollar. Why do you make me do this? But the truth is is minor mighty little penny penny, you know, differences here and there, and it gets picked up and nasby reported should not be and so that's also in this legislation. Let's fix that. Let's not have this reporting for stable plans and that kind of thing. So there's some good things in there, and there's also like maybe other things that you don't think about but are real, which is people sometimes donate

their crypto to charity. That's right, right, should be easy. But believe it or not, you have to go out and get a qualified appraisal if it's over five thousand dollars. Why would you need to do that when I can just look on you know, some exchange and get the price. I have no idea. That is the rule. So this legislation would change that as well. So there's a myriad of little things in there, but all of it is

really good. Each one of those things. The President's Working Group, the Miller Horsford Bill, and Lewis, but they're all a little different, but they're trying to get out a lot of the same things. So hopefully there will be you know, some they'll bring it all together and we'll get a good bill out of it. One of the really nice things about that Miller Horseford Bill is the they have a provision in there is you're mining and staking rewards

that you have a choice. The base rule is they're not taxable upon receipt, which is the current IRS rule. They're rather they're not they're taxable only when you sell them. That's great. That's in the Loomis Bill too, by the way, But they add another provision which is an election. If you want to elect to be taxable upon receipt, you can. And you might say, well, why do I want to

do that? The reason is, if I get a staking reward today and it's worth ten dollars, but I believe in a few months from now it's going to be one hundred dollars, i'd rather get taxed on the ten now at ordinary income rates, and then later when I want to sell, I'll get tax capital gain rates. So that's great that that electivity is fantastic, and kudos to them for thinking of that and putting that in there.

because I do steak myself, and if I can get tax at the lower amount, especially like in a bear market like we are right now, that would be ideal versus in a bowl. But dumb question on my part. So when I sell, is it a capital gains tax even though I didn't necessarily invest anything, it's just a reward.

So again another another incentive to maybe elect to get taxed earlier on the ordinary income to get capital gained later. But either way, I mean, hey, great to have the electivity, you know, And there's a lot of people in the market for things that their motives are different. I mean, if you're a publicly traded mining company, you have this issue right now where you know you're getting taxed on all these the mining rewards as they come in, you're

going to hold them for a long time. And they're publicly traded, so they have these, you know, publicly available financial statements and it's making you a little wonky between the book and the tax. So for them, they would be that person or that entity that would say I'm not going to be taxed till I sell it. But for you and I, we might make a different choice.

thoughts on the CLARITYAC You know the impact that would have on the industry and adoption, and now you know your.

who knows. But thankfully, though you might have noticed in the past couple of weeks the Paul Atkins and Michael Sillig so sec CFTC Chairman's came out they're working together. They have a memory animate understanding between the two institutions. They put out some rules just this past week at the DC Blockchain Summit. They came out and said, hey, here's how it's going to work, and basically it's Clarity

is the Clarity Act. They're jumping the gun and they're just doing it regulatorily, which is nice, but obviously still want legislation so that the next chairman of the SEC doesn't come in and just rewrite it. But they're they're already going ahead full speed with this and so and it is clarity because when you read down to clarity, and what it tries to do is say this is

a commodity, this is a charity. Well that's what they just came out with saying that the SEC is only going to do uh, token ised securities and investment contracts that is, anything other than that is going to the CFTC. And then the next part of clarity is, hey, how do how do we do registrations? Uh if we are a security or we are an investment contract, but then we want to evolve into a decentralized platform and have

a commodity. Well they have that right, they have their they have exemptions from registration or they have light registrations for funding. And then they have a provision in their safe Harbor that they're putting together here that the agencies that once you are decentralized, you can you know, tell the SEC and you will just drop out of SEC regulation and you'll go over to the CFTC. So all good. I think that's all passing into to your question, what

is this going to do for the market. Uh? Really that is needed to allow capital to really start to flow into this space and allow some of the more regulated counterparties to jump in and play a part in that, because you know, it's one thing for VC funds to do it, you know they're lightly regulated. It's another thing for a large fedial deposit insurance type of institution to do it.

would be in the Clarity Act, the SEC and the CFTC are doing, which is great. They're putting out that guidance and rulemaking and we just need the rubber stamp of approval from a macro perspective with the Clarity Act in place, but the regulatory agencies, if they're giving the green light, I think that's that's.

They came out early. They're like, go ahead, you guys can all do it. And so now that the SEC and the CFTC are going to bless this in an official way, everybody can start doing business. And if the Clarity Act has to come next year, that's okay. It's okay. At least we can we can keep going. Absolutely.

how how that is changing the way you're approaching as as a company reporting on these things. Because you have the traditional setup, right which currently exists of stocks and equities, even gold, but those assets are now being tokenized. Does it does a tokenized aspect make it more complicated or easier in different ways as far as reporting regulation and much more so.

But now someone in the market is going to take that and they're going to put it into a DeFi platform or something. Well, now what do I do with it? It's still a share of stock? But what was that? And for us on the tax side and by the way, on the audit side too, for a book purposes. So when we transfer an asset into a DeFi protocol, did we dispose of it? Like do you de recognize that asset from your balance sheet and then recognize a new

receipt token or no, do I still own it? And then from a tax perspective, same thing, did I dispose of it? Do I recognize gain or loss or did I just lend it out? Did I do I have the right to get it back? You know what is that? And then if does rewards accumulating inside the DeFi protocol, which is usually the case, do I pick those up real time right now? Does it go into the price of the token? Do I recognize it later? So and these are all these are hard. Those are really hard questions.

And by the way, all of these pieces of legislation out there in the world, the one thing that they have in common, they basically kick the can down the road on DeFi principally because we've got to get rules out as fast as we can, and DeFi is really hard. So we're going to come back to that. It's in every piece of legislation, not just in the United States, all over the world. That's the issue.

People are making that, you know, for lack of any other tool. They're trying to get into the technology and dig down there and say, well, in this technology, the way this protocol works, the way it's written, here's what's going to happen. I think we need to get to a place where we was in Ah, I'm not reading code in order to come up with the right tax rule. Let's have some bright line rules like if it did this, it's treated like that? Is that a treat like that?

Because trying to get behind you know, a smart contract is not the place for a lawyer. So we'll get there. We'll get there. But yes, that is that's going to be secondary. And in the meantime, there are people like my tax professionals I have a KPMG who have just spent a ton of time with this and they see

what market participants are doing. We take a look at what the tax risk is and we all come to an understanding of listen, we don't have rules, but here's how the industry is going to treat this for now until we do. Because what I say was when you don't have rules, especially a tax if we don't have rules, well let's all get together and go with the herd. Don't be an outlier, right, So if we're wrong on it, let's all be wrong together. We'll fix it going forward.

makes sense. Are you is KPMG in any type of group or consortium with maybe even your competitors or other industry players to try to figure these things out.

And so we all we all do that. Obviously, we don't lobby ourselves, we don't do that, but we certainly help them to do it, of course, and we are routinely asked by you know, like the Senate Finance Committee and the tax writing committees that you know, come down and speak to them more educate, educational and by the way, great great for them that they invite us down to

do that. I mean, they want to learn, they want to know, you know, so they can whatever rules they do end up writing, they can at least be thoughtful about it.

on the one hand. But the other thing that it does do is once these hopefully it will do when these regulations come out in July, is that it is going to treat payment stable coins, which is a defined term on the genius sect. It will treat them as cash. And that does a lot of things for us on the accounting side, and it does a lot of things for our regulated banking clients, you know, for on their balance sheet and on their risk weighted assets, if they can list that as cash or cash like item, it

does a lot of things for them. And so it will increase the use of stable coins greatly after that. So that's certainly one thing that's on the horizon here. The other thing that we're trying to deal with, and it's still going, I believe it or not, is the ten ninety ninety eight reporting in the US. We just had our first ones. If you didn't get your ten ninety nine dya, that's because it was a screw up.

If you've got your ten ninety nine DA and it was wrong, that's a not a mistake, that's a feature. I mean, it's not working the way it's supposed to work right now, and so we've got a lot of work this year to do to work on the ten ninety nine reporting because next year it will have tax bait where it's supposed to have tax basis on it. This year was just gross pro season. It sounds very simple, but there's a lot of work behind the scenes to

make that happen correctly. And then of course, the big big thing that we're also working on is so KARF is live. KARF is the Crypto assid Reporting Framework in Europe. It is live in many countries, not in the United States yet, but the United States will go live with that in twenty twenty eight and that's a big lift for us too to get all those regulations and get the process us in order so people can be able to report to that. So that's another thing that we're

working on in that space. But yeah, I mean, it's a it's a never ending cycle of things here that we're that we're constantly working on. And then like I said, new things just keep coming to the market, and uh, you know, we have all these digital asset treasury companies now and they have their own unique issues that we're trying to deal with. Because they're publicly reporting entities. Uh yeah. And then uh, you know, inside the asset management space,

good and bad. But I do find you know, what we have in the United States for asset management, as people are going to access digital assets, we have exchange traded products ETPs. People call them ETFs, but they're not really ETFs, right, So we're trying to get that rule adjusted so that they can be ETFs. It will make life easier for everybody. So that's something that we're working

on now too. And then one of the things they think within asset management that is fantastic are these, you know, the notion of vaults that people can have, you know, you know, put put stable coins into vaults that may be curated, maybe autonomous, and just let them trade. And you know, but then of course being able to report on that and get your castes ready from that, it's like just a new frontier for us, another thing to do.

we have in the United States. One of the great things I find about digital assets is the democratization of finance. You know, there's a lot of people around the world, you know, you take it for granted that you have a bank account, you have a you know, you have a debit card, you can go do things a lot of people do not, and so for them to be able to access that from a mobile phone is just phenomenal for them. Oh absolutely, all.

The rapid Fire. First favorite food, deld Palm, I'm Italian though, Favorite musician or band, Oh Rolling Stones?