C.2 Overview
In SAB 121, the SEC staff expressed its view that it would be
appropriate for an entity that has an obligation to safeguard crypto assets to
record a liability and corresponding asset on its balance sheet at the fair value of
the crypto assets. The SAB added Section FF to SAB Topic 5; this section included
“interpretive guidance for entities to consider when they have obligations to
safeguard crypto-assets.”
The SEC staff had observed an increase in the number of entities that gave users the
ability to transact crypto assets and provide a service to safeguard these assets.
Before the SAB, entities had not reflected this activity on their balance sheets
when they did not control the crypto assets and there was diversity in practice
related to how obligations to safeguard crypto assets were disclosed. In the SEC
staff’s view, unique risks and uncertainties (e.g., technological, legal,
regulatory1) are associated with safeguarding crypto assets. Accordingly, SAB 121 was
intended to “enhance the information received by investors and other users of
financial statements about these risks, thereby assisting them in making investment
and other capital allocation decisions.”
The SAB included an example (reproduced in Section
C.4) illustrating an entity that “safeguard[s] the crypto-assets held
for its platform users”; however, an entity did not need to operate a platform to
have an obligation to safeguard crypto assets.2