CP104: Financial Reporting

[denniswell]

RFC: Financial Reporting

Uses component: CP4
Author(s): Dennis Wellmann
Contributor(s): Jeroen Offerijns
Technical/non-technical proposal: Technical proposal
Date proposed: 2024-04-18

Short Summary

Proposal to build standardised real-time financial reporting for Centrifuge pools based on the data made available in the subquery.

High level objective

The objective of this proposal is to improve the quality of on-chain, real time reporting available to pool issuers and investors and laying the ground work to enable issuers to produce financial reports in line with current industry standards.

Background

The pool’s reporting tab in the Centrifuge App (see example here) is already a huge step forward in providing fund managers, issuers and investors access to real time data of all pool related transactions. The next step is to enrich the data available with meaningful aggregates, visuals and reports. As part of this improvement we propose to build standardized financial reports in line with industry standards.
The three main types of financial statements are the Balance sheet, the Income statement, and the Cash flow statement. These three statements together show the assets and liabilities of a business, its revenues, and costs, as well as its cash flows from operating, investing, and financing activities. Standard reporting in line with the above formats should be integrated into the pool’s reporting tab.

Description of Activity

We propose to move forward with the following main steps:

• Finalize the specs of data required and output formats based on research and user interviews
• Identify gaps to the current data structure
• Add data and logic to the subquery where needed
• Build automated reporting and export logic in UI

Change or improvement

This would allow automated reports available in real-time from the reporting tab for every pools in line with the below sample versions.

Balance Sheet

+ Asset Value 1
+ Asset Value 2
...
+ Asset Value x
= Total Asset Value
+ On-chain Reserve
+ Bank accounts
= Assets

---

+ Senior Tranche Value
+ ...
+ Junior Tranche Value
= Liabilities

Income Statement

Fungible assets such as t-bills

+- Realized P&L
+- Unrealized P&L
+ Interest/coupon payments
= P&L from trading activity
- Fees
= Profit/Loss

Non-fungible assets, such as private credit

+ Interest payments
+ Interest accrued
= Interest income
- Fees
= Profit/Loss

Cash-Flow statement

+ Sales / Repayments
- Purchases / Borrowing
+ Coupon / interest payments
= Gross CF from trading / lending
- Fees / costs
= Net CF from trading / lending
+ Investments
- Redemptions
= Total CF

Responsible for implementation

The first part of the work requires corresponding updates to the Subquery. These changes will be implemented by the EMBRIO team. The front-end implementation to make the data available in the Centrifuge App will be conducted by the Apps-team of k-f.dev.

Alignment to the mission of Centrifuge DAO

This proposal aligns with Centrifuge DAO’s mission to provide decentralized and secure solutions for onchain fund-managers, issuers and investors. By empowering Centrifuge to become the single source of truth for reporting, the protocol facilitates transparent and compliant operations while enabling data-driven decision-making for fund managers and investors, ultimately advancing the mission of decentralized finance.

---

06-05-2024 The proposal has been submitted on Github as CP104

[bella_rwa]

this is great idea. highly support this

[Tjure07]

I support this proposal because it offers transparency for both investors and Pool operators because it provides more insights into financial assets in Pools

[Kate_Bee]

Great proposal @denniswell

I’m curious to understand more about the design approach between simplicity and detail, perhaps this is out of scope for this RFC, let me know

Will the new data also be available in the ‘Reporting’ tab or will it have its own tab?

I understand that this information is going to be helpful for fund managers, issuers and investors but what is the balance between showing everything upfront and having more detailed information ‘hidden’ (i.e. accessible via clicking to a different page).

My inexpert fear is that there will be a lot of information visible, with the various UI challenges that that brings.

Even though they are the key audience, it’s not just fund managers et al that use the app: do you think this level of detail is too much for retail users, or is that a necessary trade-off to serve the key audience first and foremost?

Ultimately though, I very much agree that overall this proposal is very much aligned to the mission

By empowering Centrifuge to become the single source of truth for reporting, the protocol facilitates transparent and compliant operations while enabling data-driven decision-making for fund managers and investors, ultimately advancing the mission of decentralized finance.

[ImdioR]

Hey there!
I like the standardization of reports, because will improve the financial reports and as well will facilitate the comparisons between different pools.

But I still have a couple of questions:

1. What is the building timeline?
2. How does this report fit with traditional finance reporting?

[denniswell]

Thanks for your thoughts @Kate_Bee

Will the new data also be available in the ‘Reporting’ tab or will it have its own tab?
[…] My inexpert fear is that there will be a lot of information visible, with the various UI challenges that that brings.

The current thinking is to have it as an additional report on the reporting tab. This means there shouldn’t be any additional UI/UX challenges for now. It will be an additional option in the dropdown/selection fields. Any interested user can access it easily while it does not overwhelm others.

Going forward one may incorporate this more and differently into the App, but this would be a subsequent step where UI/UX is considered…

[denniswell]

Thanks @ImdioR for your comment.

1. What is the building timeline?

Weeks to months for “Add data and logic to the subquery where needed”. Integrating it into the App is less work and more a question of prioritisation on the App side rather than bandwidth

2. How does this report fit with traditional finance reporting?

Ideally it should be in line with tradtional finance reporting and help issuers report on the financial performance of their pools

[0xjulcaesar]

I like the idea @denniswell

It would be nice to see:

• Regular basis reports
• Fully public (or at least visible to DAO stakeholders)

But here’s the tricky point,
Since we are communicating with both Web2 and Web3 institutions, we need to make it easy to understand for both sides.

Not just the ins and outs or just ethereum addresses
Literally giving an overview of what’s going on

[ImdioR]

CP104 has now merged into the proposal repository on GitHub and is now final.

The OpenSquare snapshot has been published and will go live 6th May 15:00 CET and will be open until 13th May 15:00 CET (exactly 7 days).

Please vote here: CP104: Financial Reporting

[Rhano]

The OpenSquare snapshot for CP104 has passed.

Thank you for voting everyone!

[MktLend]

This is an excellent idea. There should be an easy mechanism for comparing reporting posted to centrifgure versus “RWR” real world reporting. An issuer in a pool should be capable of posting and distributing financial statements in general and what is reported to Centrifuge should be reconcilable to the RWR. Also, reporting format should specify whether the basis is USGAAP, IFRS or some other standard. Issuer transparency is vital to efficient functioning of any market and to ensuring investor protections.