Zima Red ep 112: Dan Hannum - Crypto Taxes, DAOs, Web3 Investing
Primer: Dan Hannum wants to build. Not satisfied with managing just Hannum Capital Management, he joined ZenLedger, a Crypto tax platform, as their COO. In this episode of the Zima Red podcast, he demystifies how the IRS views crypto taxes and his thoughts on investments, NFTs, and DAOs.
Background
Background in traditional finance
Have a MBA from University of South Carolina
Worked in Goldman Sachs, Morgan Stanley, and TD Ameritrade
Moved into crypto in 2015 as an analyst at Blockchain Capital
Why Did He Leave TradFi?
Was passionate about crypto
He felt unfulfilled and burnt out at his TradFi job
Met Brock Pierce and joined Blockchain Capital as an analyst
Was paid in Bitcoin. It was risky back then, but it turned out well
Learning About Crypto
First foray was through Silk Road in 2013
“When the Silk Road website got shut down, and the FBI warning was on the site, driving to the bank and freaking out, trying to figure out, okay, are our bank accounts linked to these accounts?”
- Dan Hannum
In 2015, he started to take the markets more seriously
Vitalik’s early writings on coloured coins and composability captivated his interest
Getting Paid In Bitcoin At Blockchain Capital
Had enough savings in dollars in his bank account
Wanted to give it 24 months. If crypto did not work out, he could get another job at a bank
Fortunately, it turned out well for him
“My mom wasn't as excited as I was, she was pretty nervous of having me take the jump of a big, structured, well-known corporate job and jumping into magic internet money, but it all worked out.”
- Dan Hannum
Leaving Blockchain Capital
Got involved with an ICO called Gear, a green energy and renewables token
Got to know a number of high profile individuals
These individuals wanted early stage access to the best startups in crypto
Raised $25 million for Hannum Capital Management to invest in the equity of early stage crypto companies
Their fund is largely infrastructure-focused
Moving From Operating A Fund To Focusing On Crypto Taxes
After 1.5 years operating a fund, he was looking for opportunities to build something
“I just kind of got tired of investing capital, sitting back, waiting a few months for a board meeting, or just a normal check-in meeting with the founder, and just seeing all these really passionate people within crypto building core infrastructure for this market.”
- Dan Hannum
Synced up with the ZenLedger team early on and got close to them
When the co-founders left in 2019, they were looking for a COO to come on board and he joined them
ZenLedger
A crypto tax platform that allows individuals, consumers, enterprises, and government entities to better understand and look through crypto tax accounting and law enforcement
It started out as a retail platform
It allows crypto investors to ingest their exchange data and on-chain data to aggregate it into accounting and tax reports
How Is ZenLedger Different From Other Crypto Tax Software?
People in their company have been in this industry for almost a decade
They have more blockchain, DeFi, and NFT integrations than their competitors
Their retail product helped them to win contracts from the enterprise side such as Budweiser and Ralph Lauren
Working with enterprises led them to work with the government
They provide customer service as well
How Is Crypto Taxed?
In the US, the first guidance they got from the IRS was in 2014, where they viewed crypto as property
The IRS would view a transaction as a taxable event
There are 3 main buckets for individuals to think about:
Dollars to Crypto: No taxable event
Crypto to Crypto: Will be taxed
Crypto to Dollars: Will be taxed
Crypto to Crypto includes staking, airdrops, forks, dividends, and mining income
NFTs And Taxes
Two main items for NFTs:
NFT taxes for consumers
NFT taxes for creators
No direct guidance from the IRS on NFTs. Hence, the guidance they use is based on crypto in general:
Dollars to NFT: No taxable event
Crypto to NFT: Will be taxed
NFT to NFT: Will be taxed
Lending a fractionalized NFT will be classified as income and would be taxable
Airdrops to NFT holders are taxable
Tokens earned within a blockchain game are treated as taxable ordinary income
Spending crypto or in-game items/trading them are taxable events
How Do Users Get Their Account Set Up At ZenLedger?
Users can get started for free
You can begin by importing your exchanges through APIs and wallet addresses to ZenLedger
Their platform will ingest and aggregate the activity across centralized platforms and on-chain to generate income and capital gain reports that your accountant needs to file
Is The IRS Capable Of Tracking Everyone That Is Trading Crypto/NFTs?
Yes, it is very easy for the IRS
The IRS is investing millions into software and human capital to look into crypto
When people sign up with centralized platforms like Coinbase and send their crypto to their MetaMask, they associate their identity with the wallet address
The IRS is very familiar with how people are interacting in crypto
The Infrastructure Bill and the Build Back Better Bill will give them $80 billion over the next 10 years to collect $30 billion in crypto tax
ZenLedger’s Moat
On the retail side, they already have DeFi and NFT capabilities
Are members of DAOs. Speaks with the community to know what their needs are
The success of their retail side helped them to get deals on the enterprise and government side
Their moat also come from the relationships that they have built
Other Areas That They Will Be Expanding Into?
They have all the customer data
They could partner with Messari or Delphi Digital and provide alpha-generating advice and research
If He Was Not Allowed To Work On ZenLedger, What Problem Within The Crypto Space Will He Work On?
Use of NFTs across other forms of media besides art and music
Use cases of DAOs
Top Piece Of Advice For Operators In Web3
General advice is to be in the industry, not just merely treating crypto as an opportunity and not using the products and services and communicating with the community
Reputation in this industry means everything
Hardest Thing About Being An Operator In Web3
To find great talent to build around and build with
Retaining talent
The fundraising landscape — make sure you understand who you are talking to and what value add they can bring
What Are Some Areas In Crypto That He’s Most Excited About?
Through his fund, he is excited about infrastructure plays and consumer products that will onboard the masses
In his personal investments, he focuses on fringe activities and speculative bets on what he thinks is interesting
What Excites Him The Most Within The NFT Ecosystem?
Music NFTs allows musicians to own the platform they are investing in
Have been exploring sound.xyz and Catalog and connecting with the musicians there
Single Favourite NFT
Probably one of his Chromie Squiggle, Fidenza, or Ringers
More of a generative art person
Most Controversial Thought On Crypto
More individuals will be interacting purely on-chain than through centralized providers
New people will come in through NFTs rather than through DeFi
If He Could Improve One Thing In The Space
To have additional guidance from the IRS
NFT Ecosystem In 3 Years
Increase in the number of users
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