Robert Materazzi on Lukka’s blockchain data for business operations

0:01i'm ashton addison from event chain for investmentpitch media and fintech news network and today on blockchain interviews we have robert matarazzi the co-ceo of luca robert welcome to the show and thanks for being here thanks ashton thanks for having me you're very welcome i'd love to kick off the interview by getting a bit of background to start on

0:19what exactly you and your team at luca are working on right now yeah so uh luca is a software and data company that focuses on solving complex data for businesses um and that more specifically today is focused on blockchain data so for all of the crypto assets that are um that businesses are utilizing and helping them anywhere from corporate books to helping

0:45strike nav um tax compliance or any of the other and then all of the challenges and processes that lead up to the actual reporting requirements that they're trying to get to yeah once you start integrating blockchain data then it can get a little bit confusing especially with the the gray areas in the past here on you know what exactly uh are the asset classes of of

1:07cryptocurrencies and how does that information tie into the company so if you could give a little bit more i guess elaboration into if there's a company that starts using blockchain data what are the different areas that luca would be working within their business operations to help them you know record that into the books sure so when they're incorporating um crypto assets or any

1:29tokenized assets into their general ledger um reconciling the data um collecting it um and and then ultimately reporting on it that's where where we come in to help them and so we'll integrate with traditional software uh traditional software does not accommodate tokenized assets and so um so we're covering that gap and and helping them um to figure out

1:56all of the many challenges that come with it like like you mentioned one of the the main challenges um is when we're exchanging one of these assets for another we have to think of things a bit differently than we're used to doing um that accountants and tax professionals are used to doing and so um we have several several methodologies and have built uh proprietary technology

2:19to cater to those needs that's great so is luca the way that you work with companies that are utilizing this type of data is you have the software services for you know the middle end or the back end which sort of just aggregates that new information into their ongoing systems that they already have yeah ultimately it's not a case-by-case depending on what the customer needs

2:40um some of them will use our software independently sometimes we'll feed into it um but you did very accurately state we're we're covering middle and back office functions for those businesses and so they'll conduct whether it's trading activity they're collecting payments they're paying employees whatever whatever the situation is with their business um

3:01we will collect all of the crypto and blockchain specific data um clean it up we call it enriching that data which is usually combining it with a couple of our data products reference data is a is a core product our software does not work without it and what that does is it maps all of the various symbols and tickers and fields and whatnot for the thousands of assets that are being

3:29traded out there down to a common uniform format so for example bitcoin is uh is labeled uh xbt on kraken um which is a major crypto exchange um but coinbase another major exchange calls it btc and it's very common that users whether they're consumers or funds or whatnot will buy it on one exchange transfer it to another and then sell it there

3:56or trade it for other assets and when you do that we need to combine it with data products so that we can clean it up and then we perform a series of reconciliation techniques sometimes our our team so a human is involved in that process usually for the larger customers of ours and then ultimately we'll help them report uh depending on whatever their reporting requirements

4:17are yeah yeah it's really interesting because as bitcoin has been growing it seems that to define this new asset class some have said it's a currency some have said it's commodity some have said it's property and the ways that each of those sections are valued can be completely different and and there's no you know uniformity across the board uh globally for this

4:40but and now more recently the sec is coming out with this new valuation methodology with regards to fair value i know that you've been following along with this can you talk about what are the changes that the sec has made here and you know what was it before and what is it now sure i mean and i'll maybe rephrase it as you know that the concept of fair value

5:02isn't new at all that's a that's a principle that um that is well established and is really core to any accounting or tax or post-trade operations um but the way that we address uh cryptocurrencies specifically we have to do in a unique way because these assets like i mentioned earlier are traded for each other and that's actually the norm it's not a

5:25that's not a rare case or an edge case associated with the trading activity and so when you're trading them in high volumes on all of these different exchanges and you get a lot of trading businesses um that have artificial volume that have fake volume and there's all kinds of articles and and um news that describes some of the things that are driving

5:48fake prices and you you incorporate that into an average price you end up with a value that is not fair and so really what not only the sec but you know the irs a lot of other agencies are all working on the aicpa is on a lot of thought leadership on how to value these assets um and uh and honestly even different approaches need to be utilized depending

6:13on how liquid the assets are some of them like bitcoin incredibly liquid offered on on almost all of the exchanges out there if not all of them um is incredibly liquid so it's fairly easy to determine a value of it um but as you go down the other assets that are that are less liquid we have to apply new methodologies and this can become very challenging

6:34particularly when you're dealing across thousands of assets at very high volumes um around the world yeah well it seems bitcoin now that it is pretty liquid and it's been trading on all of these different exchanges uh you know besides some anomalies the price seems to be uh or i guess arbitrage opportunities are disappearing uh whereas before there used to be a lot

6:56more volatility in the price so when these companies are using bitcoin what is the can you can you walk me through you know what is it that they have to record with regards to fair value now with this new proposal that they've implemented from the sec sure and most of the exchanges are actually not recording a fair value when when their users are trading assets

7:19for for one another so when we receive the data we're receiving without without attributes like cost basis or proceeds and so we combine it with another data source using a unique methodology that's designed to assign fair market value to those data sets so that we can assign cost basis and then create tax lots across all of the various liquidity providers or

7:43exchanges trading venues for these customers and then we'll um create tax lots based on their selected method um so now we're getting into traditional matching like fifo or lifo um and some other methods and we'll do that for like assets after we've applied and enriched it with all of these other data sets so it creates it particularly when a business has been trading

8:09and this is very common a lot of our customers are the large exchanges particularly the u.s exchanges and a lot of them didn't have to do this in prior years with all the increased visibility from the regulators and the government the irs et cetera there's a lot more requirements and doing this historically can actually be incredibly labor-intensive

8:32and take a lot of time and a lot of these businesses are i would say the majority of them i can speak for all of our customers their intent is definitely to comply to work with regulators to try to figure out how to operate their businesses in a mature way thinking about risk and a lot of them going through their first audits and uh and that's really one of our core

8:52competencies is is helping those businesses get through their first audits working with their auditors um so that they can pass them and then and then focus more on their business instead of their their back office operations definitely and when you have to go back a few years i can imagine there's a lot of labor involved in that as well so with this change in hand

9:12a lot of these exchanges and anybody who really has deal uh dealt with digital assets is this a much needed and is it an improvement for you know the overall i know the regulators are making putting these new rules in but is this actually going to have a net positive effect on the ecosystem and help it grow i i think so not necessarily because of the regulation and the words that are

9:36that are being used or the the methods and the approach um more just because it's putting more of a spotlight it's creating more more momentum and i think there's a lot more work to go and you know let all the smarter people debate all the right rules and figure out the right regulation um to apply to this um but at the end of the day i think more visibility on it

9:58and creating more conversations and bringing in more traditional businesses and a lot of the banks are working you know very very rapidly towards incorporating um crypto or digital assets into their portfolios and so i think that's what's really going to help help the industry and the ecosystem overall yeah it's nice to see uh the traditional regulators you know

10:20sort of incorporating and accepting these new types of assets to move them into the traditional system or the new system that's sort of hybrid and combined and now with that as you see sec proposal i believe it's this month where it actually comes in to act is it a stepping stone for more regulation to come from the sec that's like the next steps beyond

10:47uh the valuation for bitcoin do you know i think that's a very fair assumption i um i i would i would be shocked if if any of the regulators stopped focusing on this or any of the other agencies or authorities i mean there's there's there's a ton of businesses a ton of users there's all kinds of surveys out there that advertise up to 14 of the us population you know own some

11:09form of cryptocurrency um you know i believe it's higher than that um and and i don't believe that's slowing down and what you can see what's going on now with the global economy um with covid with uh the traditional markets and everything else all this combined um i think is creating a lot of new momentum and uh and bringing people back to it and bringing a lot of first-time users

11:34into it so and do you see other valuation and i guess accounting principles like gaap and ifrs are they going to start integrating rules for a crypto fiat ecosystem as well i hope so i mean that's the uh we have a white paper um that talks about what we believe and it is a white paper it's not not advice it's not official it's not um you know gap and i for us don't

11:59currently speak to digital assets and how to how to value them and incorporate them or apply accounting rules to them um but we do believe that they're uh that will be in the future i hope that they do um and that's what we're trying to do is to to apply the rules that exist today using the intent behind them towards the situations that that we're encountering with crypto

12:24and uh and so that our customers are um are set up to comply with with tax rules and any and any future guidance or standards that are out there so yeah great do you have any other thoughts or suggestions for companies that are starting to work with digital assets in their operations and and now get uh involved with these different regulations yes i i would say that the first step is

12:50is if you haven't bought any go do it um because that's the the best way to learn about how the ecosystem works just transferring you know um you know bitcoin between wallets or you know whatever whatever people are comfortable with but i'd say you know at a very very basic level is just to do that and if you are a business that's thinking about incorporating it i would

13:10say at a minimum um learn about it we have a lot of resources that are out there with thought leaders that are contributing we have a product called luca library where we sell a content subscription to thought leadership um that's luca library.com and um we have thought leaders so these are attorneys accountants and firms from across the industry that are actually

13:31submitting white papers on a lot of the topics like the sec um guidance like um a lot a lot of other different topics on how to treat uh crypto assets based on different taxable events um and so if you are thinking about it i'd say tap into those resources the aicpa has a ton of resources they're very focused on blockchain and digital assets and i'd say

13:58don't underestimate the middle and back office challenges don't assume that you're you're the technology that you use today will will be able to handle these um and and really just start learning so yeah great advice well we're running out of time but what is the best way for the viewers to just learn more about luca and get involved so our website is luca.tech l-u-k-k-a

14:22dot tech and uh we have all of our products there feel free to reach out we have contact forms we have a number of experts and thought leaders um another way to get very familiar like i mentioned is lucalibrary.com and you can also find that from our from our corporate website very cool well thank you so much for your time robert i will leave those links

14:43in the description box below for the viewers all the best with luca moving forward and let's follow up in the near future yeah thanks ashton thanks for having me again you