ERC-7776: Transparent Financial Statements
Open Transparent Financial Data such as Revenue, Costs of Goods Sold, Operating Expenses, EBITDA and Earnings Per Share for all Investors.
Abstract
This proposal defines a standard API that enables EVM Blockchain-based companies (or also called "protocols") to publish their financial information, specifically Income Statements and Balance Sheets, on- chain in a transparent and accessible manner through solidity smart contracts. This standard aims to emulate the reporting structure used by publicly traded companies in traditional stocks markets, like the SEC 10-Q filings. The financial statements include key information, namely as Revenue, Cost of Goods Sold, Operating Expenses, Operating Income, Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) and Earnings Per Share-Token (EPS), allowing investors to assess the financial health of blockchain-based companies in a standardized, transparent, clear and reliable format.
Motivation
The motivation of this ERC is to bring seriousness to the cryptocurrencies investments market. Currently, the situation is as follows:
The current state of token investment analysis is opaque, with most information presented in an abstract and non-quantitative form. This standard API ensures a consistent and reliable way for investors to evaluate blockchain projects based on real financial data published directly on-chain, not just speculative promises. This will establish a greater trust in the cryptocurrency markets and align token analysis with the standards of traditional equity markets.
Most ERC-20 Tokens representing EVM Blockchain-based companies (or also called "protocols"), DO NOT work the same way as a publicly traded stock that represents a share of ownership of the equity of that such company (so the user who buys a protocol's ERC-20, is also now a share-holder and co-owner of the business, its profits and/or its dividends), but rather function as "commodities" such as oil; they are consumable items created by said EVM Blockchain-based company (or "protocol") to be spent in their platform. They are publicly traded and advertised to be representing the underlying protocol like a share, working in practice the same way as a commodity and without any public, transparent and Clear Financial Information as publicly traded stocks have.
Added to that, most token research analysis reports that can be currently found on the internet are informal Substack or Twitter posts, with lots of abstract explanations about the features of the said protocol to invest in, that lack of transparent financial numbers and factual financial information, that are made by anonymous users without real exposed reputations to affect.
This ERC will improve that by giving users and investors transparent, clear and factual financial information to work with when analyzing as a potential investment the such EVM Blockchain-based company that implements this ERC in their solidity smart contracts, and that will generate trust, transparency and seriousness in the cryptocurrencies investments market long term.
Specification
The key words "MUST", "MUST NOT", "REQUIRED", "SHALL", "SHALL NOT", "SHOULD", "SHOULD NOT", "RECOMMENDED", "NOT RECOMMENDED", "MAY", and "OPTIONAL" in this document are to be interpreted as described in RFC 2119 and RFC 8174.
All Transparent Financial Statements Standard implementations MUST implement ERC-20 to represent shares, and the financial numbers such as Revenue, Costs of Goods Sold, Operating Expenses, Operating Income, EBITDA, Other Income and Expenses, Net Income and Earnings Per Share MUST be displayed in the value of the protocol's stablecoin of choice.
All Transparent Financial Statements MUST implement ERC-20's optional metadata extensions.
The name and symbol functions SHOULD reflect the underlying token's name and symbol in some way.
All methods MUST be of visibility external.
All methods MUST return their financial numbers valued in the provided stablecoin.
If the contract owner uses data or methods from other owned smart contracts external to their smart contract implementation of this standard, those smart contracts MUST be verified in the correspondent blockchain explorer and of open and visible source code.
Timestamp Constraint: For all methods, startTimestamp MUST be less than or equal to endTimestamp. If startTimestamp is equal to endTimestamp, the method returns a balance sheet snapshot. If
startTimestamp is less than endTimestamp, the method returns an income statement for that period.
Output Structs: Instead of a single uint256 value, each method returns a struct with one or OPTIONAL more uint256 entries to allow for detailed financial data, each one with their own customized
entry name.
Definitions:
- Currency: The individual stablecoin used to value the publicly displayed financial numbers.
- Revenue: Total earnings from selling products or services before expenses.
- Cost of Goods Sold (COGS): Direct costs for producing goods/services, including labor and materials.
- Operating Expenses: Expenses like Selling, General, and Administrative, Research and Development, and other operational costs.
- Operating Income: Revenue minus operating expenses.
- EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization.
- Other Income and Expenses: Non-operating income, such as interest, investment gains or losses.
- Net Income: Profit after all expenses, taxes, and deductions.
- EPS: Earnings per Share Token (ERC-20), showing profit allocated per share.
Methods
stablecoinAddress
Returns the address of the individual stablecoin used to value the publicly displayed financial numbers.
revenue
Returns total revenue generated by the protocol within a time period.
cogs
Returns the cost of goods sold within a specified period.
operatingExpenses
Returns the total operating expenses within a specified period.
operatingIncome
Returns operating income for the specified period (Revenue - COGS - Operating Expenses).
ebitda
Returns EBITDA for the given period.
otherIncomeExpenses
Returns non-operating income and expenses, such as interest and investment gains or losses, for the specified period.
netIncome
Returns net income for the period (Operating Income + Other Income/Expenses - Taxes - Depreciation).
earningsPerShare
Returns Earnings Per Share Token (EPS) for the period.
fullFinancialReport
Returns a comprehensive struct that includes all the prior financial details of the protocol combined: Revenue, COGS, Operating Expenses, Operating Income, EBITDA, Other Incomes and Expenses, Net income,
and EPS into a unified Struct.
Rationale
ERC-20 is enforced because implementation details like Earnings Per Token calculation directly carry over to the accounting. This standardization makes the Transparent Financial Statements compatible with all ERC-20 use cases.
This implementation enables the protocol to share their financial information both as their latest updated Balance Sheet (if the user chooses to just see a current snapshot of the financial state of the company) and as an Income Statement (if the user chooses to see the evolution of the financial state of the company between two different block timestamps) and also is thought to interact with other separated Smart Contracts of the same protocol from which the financial information will be sent.
Backwards Compatibility
Transparent Financial Statements Standard is fully backward compatible with the ERC-20 standard and has no known compatibility issues with other standards.
Reference Implementation
NOTE: This Reference Implementation is a placeholder. It will be improved in the future from the feedback received.
Security Considerations
This ERC involves displaying critical financial data on-chain, so special attention must be paid to ensure the accuracy and security of the data, particularly in preventing tampering or manipulation of key financial figures. Further discussion on validation mechanisms and audits for the smart contracts containing financial data is necessary.
Needs discussion.
Copyright
Copyright and related rights waived via CC0.