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As a crypto startup founder, you're probably laser-focused on finding that elusive product/market fit. You're building product, talking to users, and trying to create something people actually want.
But there's another crucial aspect of your business that demands attention: accounting and finance.
You probably dread it, or at least find it a distraction from the "real" work of building your product. I know I did at first when I started Stackup. But understanding the basics of accounting, especially the unique complexities of crypto accounting, helps you make informed decisions that can make or break your startup.
In this guide, we'll dive into everything you need to know about finance and accounting as a crypto founder.
Interested in this topic? I also write a guide to starting a crypto company in the US and our guide to crypto compensation.
The majority of startups don't fail because their idea was bad or the market wasn't ready; they fail because they run out of runway, mismanage their cash, or make poor decisions due to a lack of accurate data. According to CB Insights, 38% of startups fail because they run out of cash or fail to raise new capital. This is almost always because they ran out of cash before finding product/market fit.
Y Combinator's Paul Graham once said, "Startups die of suicide, not murder." Startups die because they spend their money too fast on the wrong things, not because they were out-competed.
Startups die of suicide, not murder
- Paul Graham
For crypto startups, this risk is amplified. You're not just managing USD in a bank account. You're juggling volatile tokens, complex vesting schedules, and regulatory uncertainty. But with the right financial foundation, these complexities become manageable.
Before diving into complex financial statements, let's start with the three numbers that can kill your startup if you ignore them:
Your burn rate is how much money you're spending each month beyond what you're earning.
Formula: Monthly Burn = Money Out - Money In
If you spend $80,000 per month and earn $20,000, your burn rate is $60,000. For crypto startups, this gets complex because "money" might include:
Pro tip: Calculate burn rate using only liquid assets. That million dollars worth of your own locked tokens doesn't count if you can't sell them.
Your runway is how many months you can survive at your current burn rate.
Formula: Runway = Total Liquid Assets ÷ Monthly Burn Rate
If you have $500,000 in combined USD and stablecoins and burn $50,000 monthly, you have 10 months of runway. Most VCs want to see 12-18 months of runway after funding, giving you time to hit milestones and raise your next round.
For crypto startups, growth might mean:
Pick the metric that best reflects real usage of your product, not vanity metrics. YC recommends using revenue as the top level company metric in almost all cases, as it is a stronger indication that someone is getting value from your product.
A good benchmark is 15% month-over-month growth rate, which compounds to 5x annual growth.
While you may know the burn rate, runway, and growth rate of your company, as these are the existential metrics for your company, you’ll need to go a step deeper to manage how your company operates.
You don't need to do accounting yourself, but you do need to ensure it's done right. Here's what a proper crypto accounting system looks like:
You need an accountant who understands both traditional startup accounting and crypto-specific challenges. They should be familiar with:
Many traditional accountants will claim they can handle crypto. Test them by asking something relevant to your businesses. If you’re a liquidity provider, you can ask how they'd account for liquidity provider tokens or impermanent loss. If they look confused, keep searching.
Before we get into the granular details of crypto accounting, let’s start by differentiating between bookkeeping and accounting. Bookkeeping involves transaction management, while accounting focuses on interpreting the information bookkeepers enter.
For example, a bookkeeper might categorize transactions. An accountant will use those categorized transactions to generate financial statements to evaluate results.
Bookkeepers often rely on your team to complete a majority of the backend data entry for crypto-specific transactions. Due to the high levels of data, it’s not uncommon to spend five hours a week filling out a spreadsheet of transactions if you don’t have a tool that does it for you, like Stackup.
Outside of crypto-specific transactions, you still need to manage other financial transactions by using accounting software. For traditional vendors, most modern banking tools will include a merchant code with the transaction, allowing the bookkeeper to quickly classify the transaction. As a business leader and founder, it’s up to you to select the right tech stack for your accounting team. Here are some suggestions:
A modern crypto startup needs both traditional and blockchain-native financial tools:
Traditional Side:
Crypto Side:
The key is connecting these two worlds. Your crypto accounting software should integrate with your traditional accounting system, automatically categorizing on-chain transactions and syncing them to your books. Stackup automatically categorizes transactions to integrate with traditional accounting software, but other treasury wallets like Safe or Fireblocks will require manual reconciliation or additional software.
Despite regulatory changes in the US, many banks still won't touch crypto companies. Your options include:
Many successful crypto startups operate primarily in stablecoins, converting to fiat only when absolutely necessary.
There are three main financial statements that you need to know: the income statement, the balance sheet, and the statement of cash flows. Let’s break down the main components of each of these statements.
The income statement shows you how profitable your crypto company is by outlining your revenue and expenses. There are a handful of different categories on this statement, including:
Your income statement will break each of these categories down further based on the specifics of how your business runs. For example, if you advertise and have a sales team, these expenses will often be listed as Selling Expenses under Operating Expenses.
Below is a sample income statement of an early-stage crypto company.
Other than your company's overall growth, the bottom-line number on the income statement is what most business owners and investors are concerned about. The net profit or loss tells you how profitable you were for the reporting period. It's effectively your burn rate for that period.
The income statement includes realized gains and losses. But sometimes you will want to also track the unrealized gains and losses, especially of crypto assets. These are captured in a Statement of Comprehensive Income.
The IRS sees crypto assets as intangible assets. This means they are not considered cash or financial instruments. Instead, crypto assets are reported at their fair market value, which is generally the trading price at the close of the period. Recognized gains and losses aren’t treated as “real,” such as a deferred gain.
For this reason and others we show later, it is best to keep your treasury in stablecoins as much as you can. This is part of the reason Stackup pays for gas fees: it’s much easier to do accounting when you don’t have to track a blockchain’s gas token in your wallet.
If all of this is a little confusing, don’t worry. Your accountant will help you out.
The balance sheet shows what you own (assets), what you owe (liabilities), and what's left for owners (equity).
Below is an example of an early-stage crypto company’s balance sheet.
One of the key components of the balance sheet is what is known as the accounting equation. This equation states that assets must equal liabilities plus equity. If it doesn’t, it means that something is wrong with your financial statement. Looking at the above financials, we see that total assets do equal total equity and liabilities.
Assets are everything you own, such as the value of your crypto, cash, receivables, prepaid expenses, and other fixed assets.
Crypto-specific assets might include:
It is easiest to keep on chain funds as stablecoins to avoid the headache of tracking the cost basis and swap value of every single little token on your balance sheet.
If your project has a token, things are a little trickier:
For example, if you grant 1 million tokens to an employee vesting over 4 years, and tokens are worth $1 each, you'll record $250,000 in compensation expense annually as they vest.
Liabilities are everything you owe, including notes payable, convertible debt, accounts payable, and wages payable.
Beyond traditional payables and debt, crypto startups might also have:
Equity is more complex. Equity includes past earnings and losses, dividend payments, other comprehensive income, and issued capital. Equity changes can be issued as a separate financial statement, but the final numbers are reported on the balance sheet.
The statement of cash flow analyzes how your cash is being spent by tracking changes in your cash accounts for a specified time period, such as one month or one year. This statement is broken down into three main categories:
Cash Flows from Operating Activities includes cash transactions from normal operations, such as increases or decreases in assets and liabilities.
Cash Flows from Investing Activities – This category outlines your cash earned or spent from investing activities, such as proceeds from asset disposals, purchase of fixed assets, and other intangible investments. For a crypto company it will also include purchases of tokens for your treasury, yield farming or staking activities, and liquidity provision.
Cash Flows from Financing Activities – This category shows all of your financing activities, including dividend payments and loan payments or proceeds. It also includes SAFE or equity rounds, sales of your project’s token, and employee option exercises.
At the end of the statement, all of the above transactions should equal the net change in your cash account from the beginning to the end of the period.
The main financial statements can be generated based on two main reporting methods: cash or accrual.
Let’s break down the main differences between these two accounting methods and determine which is preferred for crypto business owners.
The cash basis of accounting only records transactions when cash is deposited or leaves your bank account. This method does not track receivables or payables, making it easier to keep track of transactions and true margins. For example, you may be expecting a large deposit on December 31. If this transaction doesn’t clear until January 1, it would be deferred to the next year, potentially causing inaccuracies in your financials.
The accrual basis of accounting records transactions based on contractual obligations. Once contractual obligations are satisfied, the transaction is entered. Taking our above example, the large deposit would be recorded as of December 31 as a receivable.
There are a few reasons why the accrual basis of accounting is the go-to method for early-stage companies:
Most accounting software programs give you the option to generate reports using both accounting methods. However, when receiving reports from your bookkeeper, be sure to evaluate the income statement and balance sheet using the accrual method.
Managing the finances in your crypto business can feel like a distraction. However, it’s an integral component of running a successful company. Here are some recommendations from our experience running a crypto company and working with many others.
Staying consistent with routine accounting tasks saves you a lot of time and reduces mistakes in your financial statements. It can be a pain to figure out the context of a transaction months after you’ve made it. It’s much easier to go back and categorize transactions from last month compared to six months ago.
Here are some crypto accounting best practices broken down by frequency.
Weekly
Monthly
Quarterly
Annually
At times it may be tempting to use personal accounts to move money onchain. However using a personal Coinbase account or hardware wallet creates an accounting nightmare down the road. Even if it feels slow at first, opening new exchange accounts for your company and creating dedicated wallets (like Stackup) will save you a lot of time.
With crypto companies operating across many geographies, and talent being scarce, it can be difficult to keep employee compensation fair and defensible. This is a broad topic, so we’ve compiled some advice into a dedicated guide to crypto employee compensation.
You can get in a lot of trouble if you don’t file taxes on time. Your accountant will help you keep track, but you should keep a separate calendar or at least remember the key dates. The filings will be different depending on your geography and corporate structure.
In the US, a Delaware C-Corporation will need to make the following filings:
The tax treatment of tokens varies by jurisdiction and structure. In the US, tokens are property for tax purposes and every transaction is a taxable event. This means you need to track the cost basis of every token. If you have many tokens, this can be a nightmare. We recommend keeping your onchain funds as stablecoins where possible.
Many crypto companies have an international structure, especially if they have a protocol token. Often this means they have a US Delaware C-Corp that manages equity and operations, and an offshore entity for token issuance. This requires transfer pricing agreements and careful tax planning. Offshore entities are often in the British Virgin Islands or Cayman Islands.
Here are some of the expensive mistakes we’ve found early-stage crypto companies make:
Never use the same wallet for personal and company funds. It is tempting at the beginning of a project, since this is the lowest friction way to get funds onchain, but it creates tax nightmares, audit complications, personal liability exposure, and becomes really difficult to reconcile.
If you use personal onchain funds to kick start your business, we strongly recommend putting them into a new wallet.
Gas fees are tax-deductible expenses, but only if you track them. A DeFi protocol might spend millions in gas annually—don't leave that deduction on the table. Stackup takes care of gas fees for you, so you don’t have to worry about tracking this expense.
If you're providing liquidity, impermanent loss is generally not deductible until realized. You must track how the value of your liquidity position changes, and understand that withdrawal of your position triggers recognition of a gain or a loss that must be accounted for.
Token incentives to users should generally be treated as marketing expenses, not COGS. Misclassifying these can distort your gross margins, create tax issues, and confuse you and your investors about the unit economics of your business.
Revenue is one of the most important metrics in your business. While misclassifying revenue is not very common, it can be a huge problem. Common mistakes include:
You don’t need to master accounting to build a successful company, but you do need to build a financial foundation that lets you focus on product and growth. The unique challenges of crypto accounting, from volatile treasuries to complex token economics, require new tools and approaches, but the fundamentals remain the same: know your numbers, manage your burn, and always have a plan for your next dollar (or stablecoin).
Remember: every successful crypto project, from Uniswap to OpenSea, had to figure this out. They all started with spreadsheets and multisigs, gradually building sophisticated financial operations. You're not alone in this journey.
The crypto startups that succeed will be those that marry innovation with financial discipline. They'll track both their AWS bills and their gas costs, manage both their equity cap table and their token vesting schedule, and build products that generate real revenue, not just token appreciation.
Ready to take control of your crypto startup's finances? Start with the basics. Calculate your burn rate and figure out what your major expenses are. Find that crypto-native accountant. Your future self will thank you.
Want help streamlining your crypto financial operations? Stackup helps crypto startups grow their onchain finances with enterprise-grade controls and smooth payment workflows.
John Rising is the co-founder and CEO of Stackup, a digital asset management platform designed to streamline crypto operations for enterprise-grade businesses. Prior to founding Stackup in 2021, John began his career in aerospace engineering, where he managed missions at SpaceX, led vehicle design at Relativity Space as its first employee, and helped design the propulsion systems in Virgin Galactic’s SpaceShipTwo.
John holds a master’s degree in engineering and management from MIT and a bachelor’s degree in engineering from USC. At Stackup, John leverages his technical expertise to champion and simplify enterprise adoption of blockchain technology, making the industry more accessible to businesses and end users alike.
