Cost Basis Methods: Your Complete Crypto Guide

Orange Comet, the creators behind AMC’s The Walking Dead NFT series, began using Integral in 2022 to do web3 accounting 2x faster. To support its growth, Orange Comet partnered with Integral to automate NFT accounting, including easier reporting of primary and secondary income, automated categorization, and robust documentation of capital gains/losses in compliance with GAAP. They now close month-end 2x faster, and are on track to close month ends 4x faster.

Challenge

Royalty Payouts

‍Like many NFT companies, Orange Comet pays royalties to their creators and IP holders. They need to know how much income was earned in primary vs. secondary sales per collection and NFT token ID each month, but the data scale is massive.

Before Integral, CryptoSheets was used to pull all ERC-721s while Etherscan’s web export feature was used to pull in all ERC-20s, with some enriching using OpenSea’s API. This was done manually for all of Orange Comet’s many wallets and smart contracts.

As a result of the manual work, it took 30 days or more to close their books each month. There were also months with missed revenue recognized which required a true-up at a later time.

Audit-Readiness and Compliance

‍Orange Comet converts their crypto income to USD on a regular basis. The exchange rate must be reported to their IP holders, but it can be hard to keep track of accurately. Most block explorers only provide daily average price, which can vary significantly from the spot price actually used.

Due to their manual process, it also became difficult to accurately track (un)realized gains/losses in preparation for their 2022 audit.

From day one, the Integral team included my requirements into their product roadmap and delivered, on time, every time. It basically felt like working with an internal product team without paying the big bucks. Also, feature upgrades are a constant!

Daanish Ahmed · Orange Comet Controller

Solution

Orange Comet partnered with Integral to (1) automate their NFT collection revenue tracking, and (2) support them in getting audit-ready.

Adding their wallets and collection smart contracts to Integral while managing automation rules cut down the manual review process by 50%. Integral automatically reconciles internal transfers and token swaps, while providing granular pricing information for reporting and auditing. It also automatically detects primary and secondary sales from almost any type of NFT drop, while surfacing metadata on collections and token IDs automatically.

Thanks to the automations, Orange Comet was also able to focus on nuanced transactions that aren’t considered “standard” from an accounting standpoint, allowing them to easily monitor thousands of transactions each month. They use Integral’s reports as documentation for their financial reporting to IP holders and tax lot information related to capital gains/losses.

Working with the Integral team has been great for helping us create efficiency and scale. I see Integral as a key piece of the financial technology stack for web3/blockchain companies. The user friendly platform was fundamental in preparing for and completing our 2022 and 2021 audits. The robust reporting of Integral has given us visibility into our revenue streams including our secondary market royalty revenue. Digital Asset revenue and royalty revenue are critical data for our IP partners. Integral's platform really gave us insight and data into all our revenue streams.

Erik Nakamura · Orange Comet CFO‍

Results

Using Integral, Orange Comet is closing their month-end books 2x faster. Now that the full set of automations is set up, they are on track to close their books up to 4x faster than before.

Integral’s automation engine can identify and categorize 99% of Orange Comet’s primary and secondary sales, while surfacing the NFT collection and token ID on related transactions. The automation allows Orange Comet to easily report revenue at the collection level, while relying on Integral’s real-time exchange rates. With this information combined, they can prepare the necessary reports for their audit with KPMG.

Finally, Orange Comet can easily evaluate the impact of (un)realized gains/losses for taxes and GAAP compliance. Integral allows them to both drill down from a transaction into the specifics of the respective capital gain/loss calculation, or take a top-down approach by reviewing all their tax lots and drawdowns. These reports support them in setting Orange Comet up for success in their upcoming audit with KPMG.