Why IFRS 9 is a Blunt Instrument for Digital Assets

IFRS 9 forces assets into rigid buckets: Amortized Cost or Fair Value Through P&L/OCI. This ignores hybrid assets like staked ETH or liquid staking tokens (LSTs) which generate yield while fluctuating in value. The result is arbitrary, non-comparable financial statements.

• Problem: Staking rewards are income, but principal volatility hits P&L.
• Consequence: Inconsistent reporting for Lido stETH, Rocket Pool rETH, and similar yield-bearing assets.

The 'expected credit loss' model for amortized cost assets is nonsensical for crypto. A -50% market dip is not an impairment indicating default risk, but standard volatility. Forcing write-downs creates phantom losses, while subsequent recoveries cannot be recognized, distorting true economic performance.

• Problem: Treats market cycles as permanent value destruction.
• Consequence: Punishes holders of Bitcoin, Ethereum on balance sheets, encouraging perverse selling behavior.

IFRS 9 sees only financial value. It cannot account for protocol governance rights (e.g., Uniswap UNI, Compound COMP) or network utility (e.g., Filecoin FIL for storage, Ethereum ETH for gas). These are core to an asset's value but become invisible footnotes, misleading investors about the nature of the holding.

• Problem: Intrinsic utility is off-balance-sheet.
• Consequence: Undervalues treasury assets of DAOs and web3-native corporations.

Nested financial positions—like a Curve LP token deposited in Convex for boosted rewards—create a recursive accounting nightmare. Is it one asset or three? Where does the yield flow? IFRS 9 has no framework for decomposing composable yield streams, forcing oversimplification that masks risk and return profile.

• Problem: A single on-chain position represents multiple economic rights.
• Consequence: Impossible to accurately report holdings in Yearn vaults, Aave aTokens, or other DeFi legos.

IFRS 9 forces a binary choice: hold-to-collect cash flows (Amortized Cost) or trade for profit (FVTPL). Most utility tokens like governance or gas tokens generate no contractual cash flows, yet are held for ecosystem participation, not speculation. This mismatch defaults all non-yielding assets to volatile FVTPL treatment, creating unnecessary P&L noise for DAOs and protocols holding their own tokens.

Under IFRS 9, 'cash flows' are contractual and predictable. Staking rewards from Ethereum or liquidity provider fees from Uniswap pools are discretionary and variable, failing the SPPI test. This forces staked assets and LP positions onto FVTPL, punishing long-term holders with accounting volatility despite a clear hold-to-earn intent. This disincentivizes institutional participation in core protocol security.

IFRS assumes custody implies control and consolidation. In crypto, self-custody via MPC wallets or smart contract vaults (like Safe) represents a deliberate separation of operational control from beneficial ownership. Institutions using non-custodial staking or DeFi must navigate complex 'principal vs. agent' assessments, often leading to punitive on-balance-sheet treatment for assets they cannot unilaterally redeploy.

The fix isn't tweaking IFRS 9; it's new frameworks that classify based on holder intent and asset utility. Model after intent-based architectures like UniswapX or CowSwap. Categories could be: Operational Assets (gas, governance), Strategic Holdings (staking, LP), and Financial Assets (trading). This aligns reporting with on-chain activity and long-term viability, not just cash flow fiction.