DAC8 Reporting for Exchange Services (Fiat-to-Crypto and Crypto-to-Crypto)

Exchange services form the largest category of reportable activity under DAC8. This article covers the specific reporting requirements and challenges for CASPs that operate exchange platforms.

Exchange Services Under DAC8

Exchange services include any platform that facilitates the conversion of fiat currency to crypto-assets (and vice versa), the conversion of one crypto-asset to another, and OTC (over-the-counter) trading desks that execute large trades on behalf of clients.

Exchanges typically generate the highest volume of reportable transactions, making data management and aggregation particularly critical.

Reporting Requirements for Fiat-to-Crypto Exchanges

For each user, the exchange must report the aggregate gross amount of fiat currency spent on purchasing crypto-assets, the aggregate gross amount of fiat currency received from selling crypto-assets, the total number of units of each crypto-asset purchased and sold, the fair market value of each transaction at execution time, and the total number of purchase and sale transactions.

These figures must be broken down by crypto-asset. A user who traded Bitcoin, Ethereum, and USDC would have separate aggregate entries for each.

Reporting Requirements for Crypto-to-Crypto Exchanges

Crypto-to-crypto exchanges present additional complexity because both sides of each trade must be reported. For a BTC-to-ETH trade, the exchange must report the Bitcoin side (units sold, fair market value in reporting currency) and the Ethereum side (units received, fair market value in reporting currency).

This dual reporting creates twice the data volume compared to fiat-to-crypto trades and requires robust fair market value determination for both assets at the time of each trade.

Fair Market Value Challenges

Determining fair market value for each transaction is one of the most technically challenging aspects of exchange reporting. CASPs must decide which price source to use (their own platform price, a market index, or an external reference), how to handle illiquid or thinly traded assets, how to value crypto-to-crypto trades where neither asset has a direct fiat price, and how to manage price discrepancies between the execution price and the market price.

Consistency in fair market value methodology is critical. CASPs should document their valuation approach and apply it uniformly across all transactions and all users.

Conclusion

Exchange services generate the bulk of DAC8 reportable data. CASPs operating exchanges must invest in robust data capture, fair market value calculation, and aggregation systems to meet the directive's reporting requirements accurately and efficiently.