The Crypto Treasury Solution: Overcoming Blockchain Data Complexity: Podcast Ep. 136

Episode 136 of the Public Key podcast is here! How can crypto accounting firms do back office operations if they don’t have a 100% view coverage for all your assets. The short answer is they can’t. Well this week’s guest, Tal Zackon, CEO & Co-founder of TRES Finance may have solved this problem, by revolutionizing data handling for digital assets and providing 100% coverage across multiple blockchains and soon to be traditional assets like derivatives and bonds.

You can listen or subscribe now on Spotify, Apple, or Audible. Keep reading for a full preview of episode 136.

Public Key Episode 136: The Crypto Treasury Solution: Navigating Financial Data Complexity

“We don’t look at ourselves as a compliance company or an audit company or accounting company. We look at ourselves as a data company, first. Because you can not  analyze any of the data for back office operations, if you don’t have a complete 100 percent view coverage of all your assets”

In this episode, Ian Andrews (CMO, Chainalysis) speaks with Tal Zackon (CEO & Co-founder, TRES Finance) about the complexities of treasury, accounting and back office operations in crypto.

Tal shares how TRES Finance is revolutionizing data handling for digital assets by providing 100% coverage across multiple blockchains and their exploration into providing the same services for traditional assets like derivatives and bonds.

He also talks about their cutting-edge Proof of Funds feature and the strategic use of AI to streamline operations, while making waves with key partnerships, including Fireblocks and how they are navigating the evolving regulatory landscape.

Quote of the episode

“We don’t look at ourselves [TRES Finance] as a compliance company or an audit company or accounting company. We look at ourselves as a data company, first. Because you can not  analyze any of the data for back office operations, if you don’t have a complete 100 percent view coverage of all your assets at a very high data integrity level”  – Tal Zackon (Tal Zackon, CEO & Co-founder, TRES Finance)

Minute-by-minute episode breakdown

2 | Tal goes from the VC world to crypto and NFT adventures

7 | Strategic fundraising amid crypto market uncertainty and exponential growth

13 | Overcoming blockchain data challenges with innovative network models

18 | Building synergies with Fireblocks to provide customers with financial data integration

24 | Revolutionizing crypto exchange transparency with Proof of Funds solution

29 | Navigating regulatory compliance challenges in digital asset accounting

34 | The future of innovative solutions for digital asset accounting and compliance

Related resources

Check out more resources provided by Chainalysis that perfectly complement this episode of the Public Key.

Speakers on today’s episode

• Ian Andrews *Host* (Chief Marketing Officer, Chainalysis)
• Tal Zackon (Tal Zackon, CEO & Co-founder, TRES Finance)

This website may contain links to third-party sites that are not under the control of Chainalysis, Inc. or its affiliates (collectively “Chainalysis”). Access to such information does not imply association with, endorsement of, approval of, or recommendation by Chainalysis of the site or its operators, and Chainalysis is not responsible for the products, services, or other content hosted therein.

Our podcasts are for informational purposes only, and are not intended to provide legal, tax, financial, or investment advice. Listeners should consult their own advisors before making these types of decisions. Chainalysis has no responsibility or liability for any decision made or any other acts or omissions in connection with your use of this material.

Chainalysis does not guarantee or warrant the accuracy, completeness, timeliness, suitability or validity of the information in any particular podcast and will not be responsible for any claim attributable to errors, omissions, or other inaccuracies of any part of such material. 

Unless stated otherwise, reference to any specific product or entity does not constitute an endorsement or recommendation by Chainalysis. The views expressed by guests are their own and their appearance on the program does not imply an endorsement of them or any entity they represent. Views and opinions expressed by Chainalysis employees are those of the employees and do not necessarily reflect the views of the company. 

 

Transcript

Ian:

Hello and welcome to another episode of Public Key. This is your host, Ian Andrews. Today, I have the hottest finance company in crypto on the podcast with Co-Founder and CEO of TRES Finance, Tal Zackon. Tal, welcome to the show.

Tal:

Thank you. Thank you for having me. Great to be here.

Ian:

I keep hearing about the company every time I open my computer and start reading anything crypto, there’s something about TRES Finance. So, you guys are doing something right. Maybe let’s start, because I know you guys are relatively new company, only founded about two years ago, for the audience that hasn’t stumbled across the platform yet, maybe just the high level, what is TRES all about?

Tal:

Sure. So, we help companies that engage with digital assets to manage all their financial data for back office and compliance operations. So, it can range from accounting, reconciliation, audit, and I’ll say financial operations and then up until proof of funds, which is a new productive release and also staking data compliance. So, any company that does engage with digital assets, as I said earlier, will need at one stage or another to communicate their financials to the regulators, to their investors, and even internally.

It sounds like a trivial operation because everything is on the blockchain as they say, but it is much more complex than what you could think. Especially when things go, I would say, multi-chain, off-chain, on-chain, on-ramp, off-ramp, different custody providers, it becomes a data problem, first of all, and that’s what we are here to solve.

Ian:

Yeah, it’s an incredibly complex problem. I mean, I’m a fan of saying that at Chainalysis, we’ve helped the world take these anonymous transactions and put the narrative behind it or the why. I feel like you all are taking a similar path specifically in the accounting and audit space, which is it’s just incredibly complex data set. I am really curious though how you got to this point. So, I LinkedIn stalked you a little bit and like many founders from Israel, military service university. It looks like then you went into the world of venture capital and were investing and it didn’t look like it was purely into Web3 or crypto. It was pretty broad range of companies from what I saw. What led you into the crypto space?

Tal:

Yeah, so a great question. Until today, I’m a bit puzzled about how I actually got to this point. I would say the first time I was actually exposed to digital assets was to Bitcoin around 2017. I was actually on an exchange program and one of my fellows from the exchange said, “We should buy some Bitcoin.” I was like, “Okay, let’s do it.” I talked to my dad because I didn’t have the money. Dad, what do you think? We should buy some Bitcoin. He’s like, “I don’t know what this thing is about.” I was like, “You know what? I’m just going to do it on my own.” I tried to find a way to do it. It wasn’t that easy at the time to be honest. I started looking into it.

Then when I got back from the exchange, I joined a venture capital firm and I would say a friend of a friend of mine is one of the smallest people I got to know. I always followed what is up and about and what he’s doing, and I saw that he was co-founding a new company. So, I reached out to him because I was a VC and I’m hunting new deals the whole time. He said to me that he’s actually building something in the blockchain space. I was like, “Huh, that’s very interesting.” At the time, I was working at a seed stage fund. We were generalists, so we were investing in everything from cyber security to FinTech to drones to cloud operations. We haven’t ever invested in anything that was crypto or blockchain oriented.

I think it was just picking up at the time and we were actually competing with consensus at the time on the deal. So, it was like the consensus against this seed stage VC, never done blockchain, competing on the deal. Because of course of my personal relationship with that person, we’re able to win the deal and we led the seed round. That is when things really became interesting for me and I started looking into it. I thought they were doing an amazing, amazing job. That was in 2018. Then winter came and the GPs of the fund were like, “Listen, Tal, this is not exactly for us, this industry. It’s like a scam.”

We thought all along, drop it, and I was like, “You know what? The bunch of other things to invest in, fine, I’m putting it on hold. I’ll do as you say, I’m still young, I’m learning. Let’s move on from that.” Then around 2020, 2021, the whole rebranding started to Web3 and the NFT boom. When I had that opportunity, I was like, “Listen, things are picking up again. I’m going back in, I’m going back in, don’t hold me back.” So I just went all in and to the extent I think I had this light addiction to trading NFTs. I used to have really late at night on Discords wait for these drops and minting NFTs and trading. To this day, I have this eggplant that is just Harry Potter. It’s like an NFT on Solana, which I totally adore, but it’s of course not worth anything, but I still have it.

Ian:

What’s the most you ever spent on an NFT at the height of your addiction?

Tal:

Not a lot. I spent hundreds of dollars on a single NFT. At the peak, I think that it was worth thousands of dollars. I didn’t sell because I was like on the hurdle. Today, it’s worth $10 maybe.

Ian:

But at least you weren’t buying bored apes or something like that where you were spending real money.

Tal:

People have all kinds of dreams. My dream was to own a crypto punk. That was my dream. Recently, we hired a new engineer to the team and during the interview said to me, “I need to confess, I used to own a crypto punk.” I was like, “What?” And then he showed me the history and that he was one of the first mentors in the project. He made a nice profit out of it, but nothing close to what it could have made. The world was full of stories. I bought Bitcoin when it was 20 bucks and then I sold 2,000, et cetera. But yeah, that was a dream. Going back to the investing side of things, so I think the fund also approves the way of how I was thinking about things and we started investing in all kinds of companies in the space.

Then coming up four years at the fund, I was thinking about what I should be doing next. I met with my co-founder who at the time was actually building a cyber security company because that is his expertise, like a good Israeli entrepreneur. That’s usually the go-to going for cyber security. We started flipping ideas and he sounds a bit weird, but he was a CTO and co-founder of cyber security company looking to leave and start a new company. But at the same time, he was also running these projects on the side in the crypto space, which is so unrelated. He was part of these IDOs and consulting projects on the side. Every time he had to get paid or send money to different service providers, they had this WhatsApp group.

They were sending screenshots from Etherscan and notes and emails. It was just like a mess. It was like there’s something weird going on here. At the same time, our lead seed investor, Ed Sim from Boldstart, he was quoted on this VC magazine talking about next wave of Web3 companies. He was talking about treasury management. I knew Ed from long ago because he’s also a journalist and he’s very big on investing in Israel. We invested a lot together. When I left the fund, I of course reached out to him. I saw that quote and I was like, “We’re actually building something in the space.” It was like, I’ve seen a few teams in the space, let’s talk. What we did is… I’m going to the story of how we built it, but this is the first pitch.

I’m just going to run through this quickly. Instead of showing him a deck, we showed him a Figma of what it would look like. Immediately, it clicked, and he was like, “I’m going to introduce you to three potential customers. If three of them say or at least some of them say they will buy, I’m investing.” Within two weeks, we had a term sheet.

Ian:

Amazing. Ed Sim’s actually been on the podcast, good friend of mine. So, we’ve closed the circle here that he was your first check in. That’s fantastic. So, that first check came in 2022?

Tal:

Correct, early 2022.

Ian:

So the market at that point was a little shaky, but we hadn’t yet gotten to the FTX collapse. So, you take the first check from Ed. You’re off and running. You’ve got a couple potential customers turning that Figma into a real product and then everything starts collapsing.

Tal:

Yeah, so I’ll say something about that. So, as I said, I was a VC, so I know how investors think and I know how supply and demand work when it comes to raising capital. When we raise the seed round, there were a few investors that were a bit disappointed. They weren’t proud of the round. So, the demand was still there and I could see the market going in the wrong direction in general. So, very quickly I opened up another round, another safe round with new terms. I was able to accumulate more capital for the company in terms of fundraising while not exactly diluting us both.

I don’t know if the listeners are aware of that vehicle. So, eventually, we raised more than what we were actually aiming for because I saw something was happening. Also, at the time that we raised, you could already feel with some of the investors that they aren’t quite sure where the market is going. So, it was a bit tricky navigating the ship in those waters at the time.

Ian:

At Chainalysis, we raised in May of 2022, the last round that we’ve done, and I remember it felt like we were closing the door on the market when we did that last raise. It was like the last big round that got done in crypto that year and then that summer was nothing but down all the way until November when FTX went under.

Tal:

Yeah. So, I mean if you think about the market going south, I will say that again as a VC, I always wanted to invest in companies that aren’t applications. They are infrastructure players with a technological moat and they are must-have product, not a nice to have. What we saw in the market at the time was that when companies and people are making money and printing money, better said, they don’t really care where the money is. They just know that they’re rich. Then when things go south, you suddenly start questioning, “Where is the money? How do I optimize my taxes and accounting? How do I make sure that everything is in order, my books are in order? So I can actually move forward with my company. Because now I need to fundraise because things aren’t going the right way and I actually need to bring external capital.”

So there was actually a surge in demand for our product and I think that’s when for many of the investors things clicked. Because when we went to raise the next round, we were showing an exponential growth in revenue and huge logos that are public companies working with a startup from Tel Aviv, 15 people during a bear market. It was unheard of and the fact is that we really stuck to the principles of building an infrastructure technology first company that is a must have.

Ian:

Talk more about that. You said the words technological moat is really what you wanted to invest in when you were looking at these markets. What’s the technological moat for TRES?

Tal:

So I would say that when we think about an accounting software, accounting is an application and it’s just a set of rules that you put together to crunch data. So, if you look backwards, actually, the data is where things become very interesting. So, our thesis was that anyone can build an application that is accounting oriented or audit oriented, but where things become very interesting is when you look at data. That’s why when we think about TRES Finance, we don’t look at ourselves as a compliance company or an audit company or accounting company. We look at ourselves as a data company first because you cannot analyze any of the data for back office operations if you don’t have a complete 100% view coverage of all your assets at a very high data integrity level.

To get to that stage, you need technology. You need the ability to go to a customer and say to them, “No matter what exchange, layer one, layer two DeFi protocol you’re working on, we know how to bring in your balances. We know how to bring in your transactions. We know how to reconcile the two, and then on top of that, build the context, layers, the clustering and of course, the cost basis, methodology, et cetera.” So our ability today to promise to our customers and offer during a sales process and an onboarding process 100% coverage is real and is very fast. Because if you look at the core of the company in terms of the team members, and that is always the core of a company, we are all coming from cyber security and data backgrounds from the Israeli intelligence.

That’s what we know how to do. My co-founder, Eilon and the team, they come from, I would say, an XDR background or looking at routers and endpoints and they just took the exact same understanding or narrative of how data flows and implemented it into the digital asset space. So, the perception of how you look at wallets as endpoints, how you look at transactions and the metadata as packets moving between these endpoints, and how you look at the financial parameters, if it’s like your internal organizational network, is very similar and that’s how we look at the data coming in.

So, that is our technological moat and that’s why we were able to maybe enter a bit later to the market compared to two or three other competitors that are out there mainly on the accounting side, not on other products, and reach to the level of brands that are working with us, revenue that we are generating, and product features that is I would say beyond what any of the other platforms out there can offer with the speed of delivery that is unheard of.

Ian:

It’s really a tough problem. I mean anyone listening that hasn’t looked at this, I would say most companies that have some sort of an application that requires data acquisition in this space, they all start with Ethereum and then they’re usually able to do data acquisition on the top EVM chains because it’s all the same data model. Everything is the same.

Tal:

Same family.

Ian:

And then they try and do something like, “Oh yeah, I’ve got a customer that wants to look at data on Solana.” They run into that bear trap and realize like, “Oh, this is actually very hard,” and then they maybe go to an L-2 or they start looking at bridges. You’re like, “Oh, well, there’s hundreds of unique bridges that all deal with event data differently.” Now I’m trying to reason about cross chain swaps and changing assets across networks, and all of a sudden, it goes sideways very quickly.

So, there’s a whole long list of companies that I feel like can do that first part and are very proud of their data acquisition when they’re only dealing in Ethereum or the top 10 EVM chains. Then as soon as they get to that next stage, they all tend to flame out. The network model that you described of applying that to the world of blockchain makes a lot of sense to me intuitively, but I’m curious how you deal with the variety. Because I think looking at the website, you guys advertise support for over 100 networks.

Tal:

More than 160.

Ian:

So you’re very far into the long tail-

Tal:

Correct.

Ian:

… of chains. To get the data that you need, it’s not just the base layer chain information. You’ve got to go up into the DAP protocols and start looking at a lot of this eventing data. How are you doing that so effectively?

Tal:

That’s a great question. The comment at the beginning when it comes to EVM, so it’s actually really interesting because the barrier to enter the market of doing crypto accounting and that’s why you’ve seen so many companies that are doing crypto accounting and after a year, you don’t hear about any of them anymore because they all go for EVM at the beginning. Say they support 20 chains. They meet one customer that needs cosmos and they die because then they’re going to compete on the customers that only use EVMs. You have 20 companies that are doing the same thing, race to the bottom. The economics just don’t work and they burn out and crash and die.

That’s why I took a lot about the competitive advantage when it comes to this issue in the market. For everyone, it’s a huge challenge. We turned the challenge into our competitive advantage, and the way we did that is we built something called the collectors. We have internally a very generic data module that knows how to adjust itself to different layer ones and layer twos that we interact with. So, very quickly, when we encounter a new layer one, let’s take a layer two that’s like an EVM, okay, a new vehicle will take us between 20 to 30 minutes to integrate.

Ian:

That’s incredible.

Tal:

We understand EVMs. Then if you replicate the same family, when you said that, I was like, “Yes, it’s the same family.” If you think about it as a family cosmos, same family, substrate, also a family. So, you start building out these families. Very quickly, you’re able to build a generic enough pipeline. When you are able to bring enough layer ones into the database, you’re like, “Okay, now, I understand where are the challenges when it comes to these layer ones?” That gives you the ability to very quickly add these networks into the financial data lake on the backend. That’s what we are doing and that is our competitive advantage. That is our bread and butter, and that is the essence of how you build a data product and why we are a data company, not an accounting company.

Because if I work with the customer and I only cover 80% of his data, his cost basis is inaccurate. His reconciliation will never be completed and he cannot close his books. He cannot operate with data because he’ll always be working manually and then we just missed the point. Then he is running into silos of data. It’s just not worthwhile using our software. Just run everything on the spreadsheet, it will be much easier. So, we understood very quickly that if you don’t offer 100% coverage, we aren’t going anywhere. We can’t build a big company and we want to build the market leader. We are going to be the market leader. We are very close to being the market leader. That’s what we are aiming to do. I’ll even add to that, this might even be a scoop for the podcast.

We are actually launching a new feature called NEV. Okay. So, we’ve been looking into how to leverage AI into the system, not as a buzzword, because how we can improve the life of our customers, bring more value and also optimize our resources. We came to an idea that we have these data structures. If we can get to a stage where before we are able to integrate the new chain or even the new data source, so let’s say our customer says, “I love what you guys are doing with digital assets. Can you also work on derivatives, bonds, any TradFi asset?”

We say to them today, “Yeah, give us a spreadsheet. Our AI knows how to crunch up the data and show it to you in the system in the same format.” So it’ll all be part of the financial data lake and it gives us the ability to give you 100% coverage not only when it comes to your digital assets, but to any asset you are interacting with that has financial value.

Ian:

Now, that’s a super interesting strategy to me because I think most people in the Web3 space have taken the opposite approach of saying, “Well, likely, if my customer is playing outside of digital assets, if they’re not a pure play digital asset, they’ve already got a solution for audit and accounting and I just need to plug into that.” So we’ll do all the digital asset calculations and then we’ll tap into whatever their main system of record is and we’ll deliver that data in a format they can use. You’re going the other direction saying, “No, no, no, bring us all the data. We’re going to run the entire enterprise.” That seems like a much bigger problem to tackle.

Tal:

I would say that both approaches are correct and I would say we are implementing both, because at the end of the day, we can enable you to extract the data and see it in an output that is a report, or you can integrate natively into NetSuite, Xero, QuickBooks. We recently launched the universal ERP connector. So, even if you’re working in Germany or Switzerland and you have this local ERP, we know how to connect to those very easily. The idea here is to build the platform that knows how to crunch it all into one place, right? Because if now they’re connecting into NetSuite, they’re connecting us for the digital assets, but then connect their bank accounts and this API and that API, it just becomes a huge mess of APIs.

We have a really cool rule-based system of how you can customize to very granular rules the data stream into your NetSuite. So, if you can use the same rules for any financial asset through TRES, I’m giving you both sides of what you’re looking for. I’m giving you the ability to also integrate the traditional assets and also the ability to push all the data into a consolidated view that is still traditional, that isn’t crypto oriented.

If you’re integrating with crypto or if you’re working with digital assets, better said, then you have everything in one place in the same financial data lake in the same format, and everything can be streamed with the same rule system into your ERP. That is the ideal way you would want to work, right? Everything in one place, 100% coverage with a company that is SOC 1, SOC 2 compliant. You trust the data, it’s optimal.

Ian:

Talk a little bit about the customers that you’ve won. You mentioned earlier some big enterprises, people outside of the Web3 space. I’m curious how do you reach them as an early stage startup company and build trust around the space?

Tal:

Yeah, hustle. You just hustle. You hustle really. As we speak, I have one of my salespeople in Europe fly out for a 20-minute meeting in a different country saying that he was in the neighborhood, maybe you should pop in just to close the deal. We do whatever it takes to win and we will be relentless in finding a way to get to a customer we think would enjoy the value that we provide. We will use every resource that we have if it’s investors, LinkedIn, outreach, different partnerships, channel partnerships.

We worked very hard at doing this. I think that the way that we work today is the motivation to win gives us the ability to work two, three, four, five hours more than any other company in the space. Those hours compound into a competitive advantage that I called earlier hustle, but it’s just very hard work.

Ian:

Yeah. Yeah, it’s great. I love that, the old I’m in the neighborhood would love to stop by. Yeah, it was just flying over. You recently announced a partnership with Fireblocks. They’re also a big partner of ours here at Chainalysis. Talk a little bit about what you’re doing with Fireblocks and why that’s such a significant milestone for you.

Tal:

Sure. Fireblocks is an amazing company. I mean I know they work very closely with you, but even if you just look at the market share, you can see that they’re by far the market leaders in terms of brand and product and technology and the platform that they built. It is just amazing what they’ve been able to accomplish. So, I would say at every point in the TRES journey, we looked at Fireblocks as an inspiration as it’s also an Israeli company and how they were able to break through into the space and become a market leader. They are working with the biggest brands in the world today, and one of the things that you learn as a startup is that you can go very direct on the sales, but distribution is key.

We learned that Fireblocks as a company has a DNA that is very security oriented and it is a bit different from the way we look at things as we are a data company. So, the ability to offer your customers data product as a security company is limited and the expectation sometime is to get those data products because some customers will even regard Fireblocks as their bank. When you work with your bank, you expect them to give you data at a very high quality like the source of truth. When you work on Fireblocks, you expect to get different reports to go through audit and different compliance needs. That was a gap that was always there, I think, in the Fireblocks product. So, they’ve been trying to build this internally.

They’ve been trying to partner with different providers, and then we started working together. It was this perfect match where we were able to work very quickly in this light mellow manner. I don’t even know how to explain this, but the vibe was just right in terms of how we were able to connect with them and help their team solve data problems without asking for anything, just like there to show our capabilities. It’s always the first give approach. Very quickly, they fell in love with the product that we offer in terms of the data, the reports, and the feedback from their customers. Suddenly, the account managers and the customer success team don’t need to go and create all these tickets for the R&D. They only want to focus on building security products.

Now they are dumping all these requests into Slack and we are just sending back the reports that they need. Again, it’s hearing from the customers like, “I love you, thank you.” Then we turn that into a commercial agreement. Of course, that today is probably one of our top three distribution channels where any Fireblocks customer can interact with us directly through the Fireblocks console. So, in terms of distribution, it’s amazing. In terms of value that Fireblocks customers are getting, it’s exactly what they needed. That was the missing part of the puzzle when working with Fireblocks.

So, I think that we always strive to get to this win-win-win situation, and I think that that’s exactly what we were able to build here in a really good sense of balance between all the players in the game.

Ian:

Yeah, it’s such a logical partnership. It’s like, “Oh, this is actually what customers really want. They want their custody solution, their audit accounting solution to all be connected together.” You mentioned it earlier briefly, but I wanted to talk a bit more about proof of funds. So, this is a new feature you brought out.

Tal:

Correct.

Ian:

If people recall back to late 2022, as FTX was imploding, everyone became very concerned about, “Well, is any exchange safe?” Everyone started launching these proof of reserves attestations basically, which it always felt a little bit empty to me, because it was only half of the equation. It was like, “Well, here’s assets sitting in a wallet that we can all look at on the blockchain and agree that contents are there,” but we never had any clue what are the claims on those assets? What’s the other side of the balance sheet, liabilities?

Also, it was very difficult to say, well, are those funds that the exchange owns versus customer funds that they’re holding on behalf or for the benefit of their customer? So you couldn’t really get a full picture there. It wasn’t nearly as reassuring as I think maybe it was initially conceived as people were trying to build these things quickly Talk a little bit about what you all have done with proof of funds and how that’s different.

Tal:

Sure. So, if you think about proof of reserves, it’s all about the word reserves, right? I need to show that I have the reserves to cover what my customers have deposited into my platform. We don’t think it’s the right way to look at things, because first of all, you as the platform need to make sure that you know what’s happening inside your customer wallets and your internal systems. That’s why we call it proof of funds. We want you to prove that you first of all know where the funds are and who they belong to, which sounds like, yeah, I mean pretty easy, right? All the platforms have their internal systems, exactly. It’s a centralized software that they built internally to keep track of your funds. So, the amount of bugs, mistakes, problems, it’s not the blockchain. It’s different.

So, what we try to build out of these requests that came from our customers is how can TRES help us reconcile the source of truth, the blockchain to our internal systems? How can we make sure that everything we see inside our system, we can actually trust? Which sounds trivial, but it’s not. You want a third party data company that that’s what they do from the minute they wake up until they go to sleep is data. What we provide them today is a time series database, it could be daily, weekly, monthly of all the addresses where customer funds flow, reconciling wallet to wallet or inflows and outflows to the exact balance that should be held by you on behalf of your customers.

It could be a wallet per customer, it could be omnibus accounts, but making sure that everything matches to the transactional level. So, it gives you the assurance that you are in control of what’s happening inside your wallets and your customer wallets. You can be assured that when it comes to compliance, you can go through audit by showing that you know exactly where these funds are. If you really want, you can externalize this data as a fresh approach to proof of reserves, not showing if you have the reserves but showing what you actually have. So, that’s what proof of funds is about.

I think that it’s a new product and there is a lot of market education still to go through, but when we show this to different exchanges and FinTech companies that are working with retail customers and end users, they suddenly sense like, “Oh, my God. This is what we needed.” The reason I don’t have it today is I have an internal system that was built as part of the product, but that extra crunch getting to the on chain data has to go through R&D again. It’s definitely not in the top 10 priorities for R&D. So, don’t get any engineering resources.

Then we come with this built as a service with a whole team that’s an engineer extension to your team with a deep understanding of how this data works. Within a day or two, all the data is loaded historically also. So, you can even reconcile your customer data to 2020, 2021. For them, it’s just like a dream come true. So, that’s proof of funds.

Ian:

Yeah. For people that haven’t spent time thinking about how most exchanges operate is they generally have deposit accounts or deposit addresses per individual. So, when you’re sending funds, it’s into a single address, but then that address is somewhat transient. Funds get collected back into omnibus or master wallet infrastructure. Sometimes those are cold wallets. Some are more hot, active, but when you’re trading on that exchange, those transactions are not going back to the blockchain.

It’s all internal accounting, a bookkeeping operation on the exchange, and you’ll only see periodically of corresponding transactions for very large traches of assets usually that are actually moving in and out of the exchange related to then supporting those likely smaller retail trades on the exchange. So, you’ve got two very disparate data sets here.

Tal:

Exactly.

Ian:

I would imagine there’s a bit of a data integration challenge as well, because most exchanges have built their own wallet management and internal bookkeeping software. There’s not a standard there that everyone’s hewing to like with the blockchain. So, you’ve got to be able to deal with, I would imagine, pretty varied sources and levels of data equality.

Tal:

So that’s why we focus mainly on the data end part and bring it into a generic database. MongoDB, we don’t go to technical into that, but essentially, that gives the exchange the ability to interact with this data through the Atlas, the dashboards inside the database, all through a robust API that Mongo offers. Then you can stream that data directly into your own database and very easily compare the numbers. So, there is some engineering glue that needs to be built here, but it’s ready in a database. You don’t have to go and now query every single blockchain, asset, address. Everything is very centralized with the context that they were looking for.

Ian:

Yeah, you surprised me by saying Mongo there. I would’ve never guessed that you use a NoSQL database with financial data. That’s a bit of a surprise. Although we’re probably going way down the nerd direction here.

Tal:

We don’t do this to listeners.

Ian:

We won’t bore anybody too much. I want to shift gears a little bit and talk about the regulatory and oversight climate because I think probably similar to our business at Chainalysis, there’s this evolving landscape of what are companies who are touching digital assets actually expected to do. For our business, if you go back to 2016, 2017, it was an open question about, “How should a crypto business be regulated? Are they a bank? Are they a broker dealer? Are they something in between?” It settled out around, well, you’re at a minimum of money service or business. So, you need to do KYC. You need to do transaction monitoring.

Then that regulatory standard, it drove a huge amount of growth for our company because all of a sudden, everyone needed to validate deposits and withdrawals like, “Is this money cleaner or dirty?” My sense, and I’m not as close to it as I’m sure you are, is the landscape around audit, tax, accounting for digital assets is unclear and it varies quite a bit jurisdiction to jurisdiction. There’s not an easy, like in the US, the GAAP accounting rules for how companies record revenue and things like that. They don’t quite accommodate digital assets in a clear way is my sense.

Tal:

Yeah, let’s start with this. Okay, if you give two accountants the same data set, even if it’s not crypto and you ask for an output, you’ll get three different answers. So, what we understood at TRES is that the ability to manage geography by geography puts us in a position that is just not sustainable and not scalable. So, we started analyzing what things would look like. On the regulatory front, I mean we’re all looking in two months from now, November, what will happen then and how this will impact the regulatory environment, but we can already see the direction of where things will be going.

When we analyze the regulatory needs of companies, every company, doesn’t mean if they have engagement with digital asset or not, needs to run through a process to prove that they are a healthy company, that they know what they need to pay the government, they need to show that they go through audits and everything is kosher. In order to get to that state, there’s a very specific check list that you need to go through and that covers 80% of the process. Okay? We cover 80% of the process. The extra 20% will always be adjusted per the finance team internally or the accounting firm you’ll be working with or the auditor that you chose, right?

Even if you are sitting building next to building and you have the same company, both of your asset managers for example, the way you’ll be looking at the same transaction might be different. It depends on the approach. There’s always a customizable way of looking at things and each company can translate the rules or the way to look at things differently and they’ll both be okay. Our objective is to bring you to the fact that you can run through the 80% very difficult part quickly and then leave that 20% of adjustments to a one-time customized approach to the system. Then from there onwards, it just works for you. So, that’s the way we look at the regulatory environment and the different rules that you need to apply on your finances.

Ian:

Do you work with any particular accounting firms? Do you end up in a position where you’re recommending to your clients, “Hey, you should use these accountants because they actually understand digital assets”?

Tal:

I mean, for sure. We’ve worked with so many accounting firms up until now. I would say each salesperson on the team also has their top three to five firms that they like working with. Some of them really understand the landscape and how to look at things. Some of them are completely clueless and we recommend, of course, not working with them. I will say, of course, that it works in our benefit. To be very transparent, when we recommend a provider or service provider, we usually recommend a provider that worked with our system before, knows how to operate it, and can make the most out of it, and then it also brings more value to the customer, working with an accounting firm or an audit firm that knows how to use TRES.

They don’t have to go through this whole onboarding sessions, and immediately, you can enjoy the value. So, it works in both ways. I would say that a lot of the customers that we talk to come through these firms also recommending us because they know what advantages our system provides today. There are very specific companies working on, say, these networks or involved in that DeFi protocol, that exchange that they know that we are the only provider out there that can even give them some solution. So, we have a very good relationship with many of the firms and we like recommending our partners.

Ian:

Yeah. Last question for me, it seems like you’re moving incredibly fast. You guys have accomplished a ton in the last two years. What’s next? What should we be looking forward to coming out of the team over the next six months to a year?

Tal:

Yeah. We’ve recently ramped up our marketing team. We used to release these amazing features on a, I would say, weekly, monthly basis. Never really communicated that to the market. Then now that we have this team in place, we are now just letting everyone know every single change we do in the platform. It’s been amazing. The feedback has been amazing. I would say that we all continue doing what we do best, which is data, making sure that we are leading the pack when it comes to coverage and data integrity. That is the most important thing. Then improving the workflow for our customers to also accommodate the regulatory environment, as we discussed earlier, making everything much easier.

I can in one, two clicks be able to close the books or go through different compliance checks and looking to expand into other markets. I said about the NEV, how we can consume data from other platforms. Then of course, the surge in AI has been amazing, not as a buzzword, but one of the things we’ll be released in the next two, three weeks is the ability to interact with your financial data. I didn’t really mention this too much, but at the end of the day, each customer has its own Web3 financial data on the backend. Everything in the system is API first. I talked about technology earlier. We are their first company.

The ability to now implement models on top of your own data and give you as a customer your own database and your own model that you can query very easily with free text that will just shoot out graphs about your performance, about your different regulatory needs is cool. We have a POC. It’s working. I’m actually looking at it as we speak because-

Ian:

Amazing.

Tal:

… I’m getting all these messages. That is also part of the future for TRES Finance. So, the idea now is to make sure that we keep leading the market when it comes to technology, coverage, and data. Also, the next wave of companies that will be engaged with digital assets know that they have a platform they can trust to go through any regulatory or financial back office accounting audit hurdle. So, they can focus on what matters the most, which is usability and their own product and how they bring value to their customers.

Ian:

Incredible. I can’t wait to see it. Tal, this has been a fantastic conversation. Thanks so much for joining us.

Tal:

Appreciate it. Thank you for having me. Thank you.