DeFi Accounting and Portfolio Tools (2024)

Financial reporting and portfolio management are a significant part of every business. Apart from helping you keep track of all financial transactions, it is also crucial for tax purposes and legal reasons.

Over the past decade, cryptocurrency has moved from being on the outskirts of financial services to becoming an important part of most businesses. Whether you store it as an asset, accept it as a payment, or trade it, you should understand that cryptocurrency is different and more complicated than traditional financial instruments — and reporting it to oversight agencies can be very complex.

That’s where DeFi accounting and portfolio management comes in.

DeFi crypto accounting is simply the process of keeping track of all the financial transactions in a cryptocurrency-related business. This process is essential for record-keeping, general business management, legal reasons, and tax purposes.

DeFi and cryptocurrency have come to stay, no doubt. But it’s a new type of financial instrument that’s barely over a decade old. So, it doesn’t fit into existing accounting guidelines under Generally Accepted Accounting Principles (GAAP) or the International Financial Reporting Standard (IFRS) framework. And so, accountants are forced to turn to existing standards.

In this article, we’ll walk you through everything you need to know about crypto accounting and the different accounting and crypto portfolio management tools you can use. Without ado, let’s get started.

Financial accounting is complex on its own, but the complexity and decentralized nature of DeFi instruments without specialized accounting and portfolio management tools will be overwhelming for cryptocurrency investors.

So, the complex DeFi financial instruments like liquidity pools, DEXes, yield farming, lending protocols, staking, and automated smart contract protocols require specialized portfolio management tools to help users track and manage their diverse assets and transactions.

Second, there is no downtime in DeFi like in traditional finance. These specialized tools help you keep track of your assets and position in real time, enabling you to make informed decisions. You can easily track your past transactions for tax and regulatory compliance.

Finally, since most users interact with multiple accounts, protocols, and smart contracts, specialized accounting and portfolio management tools facilitate a seamless integration among several platforms. It provides you with an intuitive report and an overview of your financial health.

Simply put, position in finance is the amount of security, currency, or commodity owned by an individual, investor, institution, or financial organization.

So, a DeFi position is the financial state and exposure you have in a DeFi protocol or platform. It involves the activities you engage in within the ecosystem.

Here are the different types of positions in DeFi crypto.

1. Liquidity Pools

Liquidity pools are crowdsourced pools of cryptocurrencies and digital tokens locked in a smart contract. These locked tokens are used to facilitate trades on DEXs. A liquidity pool replaces centralized market makers and lets investors or traders buy cryptocurrency in a decentralized manner.

In a liquidity pool, you deposit your assets in a smart contract, which enables assets to be traded in permissionless or automated ways. A pool is usually designed to incentivize the liquidity providers — those who supply their tokens into the pool. And the pool rewards them with a part of the trading fee and other incentives.

2. Staking

Staking is also the process of locking up your crypto or digital assets in a smart contract to support the protocol network and earn rewards over time. While Staking and Liquidity providing look the same, they are significantly different. The former serves as a support system for a blockchain network, e.g. proof of stake mechanisms. While the latter helps pool funds to facilitate trades for DEX users.

Another way to look at it is that staking is like saving money in your bank. The bank uses customers’ deposits to support its services, like creating loans for other people and businesses or investing. Then, the bank pays you interest on your savings.

Staked cryptocurrencies are locked up in the protocol’s smart contract. These tokens maintain the ecosystem’s operations like validating transactions.

3. Yield Farming

Yield farming also involves depositing your asset to earn rewards from smart contracts, DApps, and DeFi protocols. Here, you lock up your asset in a smart contract or a liquidity pool to earn additional tokens as a reward.

Yield farmers always put their cryptocurrency to work by depositing on different DEXes, yield aggregators, liquidity pools, or option and derivative protocols. The purpose is to provide liquidity for the DApp.

Wondering what’s the difference between staking and yield farming?

Staking lets you earn rewards for holding and validating transactions on-chain. It supports a network by helping validate blockchain transactions. Also, staking offers a fixed Annual Percentage Yield (APY).

Alternatively, yield farming lets you provide liquidity to a DApp, smart contract, or yield aggregator in exchange for incentives.

4. DeFi Lending

This involves offering loans on DApps and decentralized platforms. DeFi lending is decentralized, i.e., no intermediary or loan facilitator. The process offers permissionless, transparent, and open-source ways to loan financing. It is similar to the traditional lending process, just that it’s more efficient.

Unlike the traditional lending process, which is time-consuming, requires KYC/AML verification, and so on, crypto lending only requires the protocol to check if the borrower meets the collateral requirement.

Being a lender means you provide funds to a lending protocol’s smart contract. The fund is released to the borrower after they deposit their collateral. This process offers a trustless approach to crypto loans. As a lender, you earn interest on the borrowed loans. DeFi allows individuals to become lenders like banks and earn interest on their investments.

Effective position management is an essential component of a sustainable investment strategy, especially in the complex world of DeFi. Whether it’s to minimize risk, address volatility, or ensure a disciplined approach to DeFi crypto investing, crypto investors and traders should be diligent when managing their positions.

Now, let’s discuss the importance of position management for DeFi investors.

1. Tax Efficiency

Considering the tax implications of buying, selling, and holding a position, effective position management will help you, as an investor, gain insight into your outlook. When you track your portfolio effectively, you track losses and gains, and thereby, you reduce the tax liability, which helps minimize your taxable income.

Moreover, you can implement tax-efficient strategies to optimize after-tax returns and achieve your financial goals. Also, when you manage your position effectively, you can track historical transactions and correctly classify sent and received token transactions.

2. Volatility Mitigation

It’s already a cliche that cryptocurrency is highly volatile. However, with proper position management, you can mitigate the effect of volatility on your investment position.

A comprehensive look into your portfolio lets you make informed decisions and efficiently diversify your investments, which reduces exposure to volatility and uncertainty.

Moreover, with proper management, you foster a more rational/calculated trading approach. You also have the chance to adjust your position based on the risk tolerance and the current market condition.

3. Adaptability to Market Condition

The ability to track what you hold and where it’s held gives you the power to adapt to market conditions to minimize loss or take advantage of the current market sentiments.

Most cryptocurrency investors have an average of 10 wallets. With effective position management, you can track all your holdings, and positions, and build a crypto profit calculator to see how you’re faring over time.

Moreover, you can also decide the percentages of your investment you want to keep in different positions based on the current market sentiment.

Are you overwhelmed by the number of crypto accounting and portfolio management tools available online? Here are ten great ones you can use with ease.

1. Bitquery

Bitquery is a blockchain data infrastructure tool that helps you search, parse, index, analyze, and use information on different blockchain networks. Its support for over 40 blockchains, all DEXes, and over a million tokens lets you access quality insights to make informed decisions.

While Bitquery offers insight into on-chain data analytics, the blockchain data company now offers a tool called Bitquery Portfolio 360 that will let you manage your crypto portfolio.

With Portfolio 360, you can access your DeFi portfolio and manage your wallets from just one intuitive dashboard. The tool offers a multi-chain blockchain analytical tool that lets you gain detailed insight into your portfolio. Check your DeFi positions, rewards, balances, and NFT holding.

Moreover, this tool offers as-eye view into your positions and helps you track historical balances for tax preparations, accounting, and profit and loss analysis (PnL). It lets you manage your portfolio in real time and access your investment updates.

You can analyze historical trends and assess your performance over time. Determine your Net Asset Value (NAV), assess Total Value Locked (TVL) insights, and analyze the transaction insights, including transaction fees and the types of transactions.

Here are some APIs to best use the Bitquery Portfolio 360.

1. The Token Transfer API lets you track token transfers across multiple chains. Use the address filter to gain insight into any wallet address you want to track.
2. The Balance Query lets you retrieve balance across multiple chains all at once
3. Use the Cross-chain Trade Insight API to draw insight from trades across the different chains you have positions in.
4. The Universal Token Tracking API offers all-around information into the statistics on a token across multiple chains.

Finally, Bitquery Portfolio 360 lets you develop one of the most significant metrics for crypto accountants and portfolio managers — the Profit and Loss (PnL) metric.

Tracking profit and loss in DeFi crypto is very complex because of the comprehensive and fast-changing nature of the industry. But with Bitquery API, you can easily track it. Here is how to develop a personalized crypto profit calculator for your portfolio.

2. ZenLedger

ZenLedger is a cryptocurrency tax and accounting tool. It’s built to simplify crypto tax for investors, accountants, and portfolio managers. With support for over 400 exchanges, 100+ DeFi protocols, and over 10 NFT protocols, you can track your asset and position across multiple platforms and chains.

Calculate your DeFi, NFT, and crypto taxes from an intuitive dashboard. Check your PnL, and track trades by only integrating your platform into ZenLedger.

Use the fair market value, cost basis, and gain/loss features to generate a bird-eye overview of your portfolio. Other features include tax loss harvesting, audit reporting, and support for external tax reporting platforms.

Moreover, the Grand Unified Account (GUA) feature gets you a valuation report that summarizes your transactions, and offers a comprehensive overview across multiple exchanges, wallets, self-transfer, and so on in a single spreadsheet. You can also check or audit trail reports, accountability reports, reports of income gifting, and so on.

3. CoinLedger

This is a crypto accounting, portfolio management, and tax tool. It offers over 167 integrations to several DEXes, CEXes, and DeFi protocols. And by this, you get a comprehensive look into your transaction history and overall portfolio performance report.

Unlike other tools, CoinLedger can understand the different types of transactions and automatically classify them into the appropriate columns once you integrate your wallets. The accounting tool uses machine learning to track inaccuracies and missing data and calls your attention to it.

You can also integrate CoinLedger into your external tax platform and import your tax report directly into your primary tax filing software.

Access features like tax loss harvesting and profit and loss reports. Gain a broad view of your portfolio and get insight into your income. You can also check your position, analyze your portfolio for investment opportunities, and track your portfolio wherever they are.

4. Delta Investment Tracker

Delta by eToro is a multi-asset portfolio tracker that monitors balances, changes, and transactions across the crypto investment landscape. It provides a crystal clear overview of your investments and supports 300+ exchanges with over 5,000 crypto assets.

This advanced asset portfolio tracker lets you sync your portfolio account across multiple devices to gain a comprehensive view of the health of your portfolio. Check your portfolio balance across different chains, analyze the PnL metric, and track gas fees, transactions, and historical information.

Delta also offers insight into different financial options beyond DeFi. You can monitor your stocks, futures, mutual funds, and currency indices positions.

5. Koinly

This is an accounting and portfolio management tool for individuals, investors, accountants, and portfolio managers that lets you track your historical transactions and easily calculate your taxes.

With support for over 500 chains, exchanges, platforms, and wallets, you have extensive access to your portfolio. Access your DeFi options and holdings (which include staking, airdrops, lending, yield farming, and liquidity provision) on different platforms to effectively analyze and decide your strategy.

You can automatically import data from popular chains, including Binance Smart Chain (BSC), Chronos, Ethereum, Polygon, and other EVM-compatible chains.

Track your total holding, growth over time, ROI, PnL, and Capital gain. Check for your realized and unrealized profit.

Moreover, if Koinly doesn’t support your chain, you can input your transactions manually. This portfolio management tool also offers jurisdiction-specific reports for personalized accounting.

6. Blockpit

Blockpit help removes the headache involved in keeping track of your financial transactions and reporting your crypto activities. This tool provides end-to-end solutions that come with innovative and advanced accounting functionalities.

With support for integrations into over 400 exchanges, over 20k crypto tokens, and up to 50k transactions, you gain rich insight into your portfolio.

The crypto tax collector feature helps you legally file your taxes and removes the headache involved in taxing. The crypto tracker features track your portfolio in real time to help you make informed decisions and gain insight into what’s happening in your account.

The crypto app is available both in iOS and Android

7. Nansen Portfolio

Nansen portfolio is a web3 portfolio tracker and manager that monitors and analyzes several wallets across over 45 EVM and non-EVM chains. Integration with over 400 centralized exchanges (CEX) gives you a broad overview of the health of your portfolio and gain insight into the data available on-chain.

Moreover, Nansen has access to over 240 million labeled wallets, which will help you gain an in-depth understanding of your wallet in relation to others.

With the Nansen portfolio, gain live in-depth access to research reports, smart alerts, and transaction history for every wallet and exchange integrated, and track DeFi rewards and debt.

8. CoinTracker

CoinTracker is a comprehensive portfolio management tool launched in 2017. It supports over 8,000 tokens and lets you track 300+ wallets and exchanges. Gain real-time insight into proxies, historical data, deposits, and withdrawals.

With an intuitive and unified dashboard, you gain access to an overview of your account and the performance of your portfolio.

CoinTracker lets you automatically synchronize user data across multiple chains and adjust your portfolio in real time. Track your wallet and set your portfolio account up for over 200 tokens.

This tool shows comprehensive information, including Net deposits, Net proceeds, unrealized PnL, etc. It also lets you gain broad insight into your portfolio to make insightful decisions.

DeFi crypto is complex already, and adding the accounting stress to the existing stress may be unbearable. This article touched on the top best accounting and portfolio management tools you can use to avoid stress.

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