In Silicon Valley and other tech hubs, companies have long been familiar with the challenge of paying a global network of employees in cash and shares. But as the crypto industry matures, firms now have to manage a new type of compensation—digital tokens issued by blockchain projects.
That's why Ken O'Friel, a Tokyo-based former equities trader, cofounded Toku, a startup that helps crypto companies comply with a raft of international tax obligations related to token-based salaries.
On Wednesday, Toku announced it's raised $20 million in an initial round led by Blockchain Capital and other investors, including the law firm Orrick and the founders of Protocol Labs and infrastructure firm Alchemy.
"We realized the hardest part isn’t the tokenomics or the software, it’s how to follow the law," O'Friel told Fortune in an interview, explaining that Toku has created a system to track crypto-related tax laws and regulations in dozens of countries.
O'Friel added that when he began building Toku at the tale end of the last bull market in early 2022, compliance was not anywhere near the list of concerns for the vast majority of crypto firms. But in the wake of FTX's collapse and fierce blowback from regulators, O'Friel says many of the same firms are now treating compliance, including tax obligations, as a top priority.
Toku currently has around 30 clients that are primarily, in O'Friels words, "enterprises that have lawyers," including Decentralized Autonomous Organizations. These include familiar crypto names like Filecoin Foundation, Gitcoin, Gnosis, Hedera Hashgraph, and PleasrDAO. In the coming year, Toku has plans to attract clients from the venture capital industry as well.
Building Toku's platform, which entailed reviewing the tax laws of more than 100 countries, produced a "huge legal bill," says O'Friel. But this sunk cost, he anticipates, will put the startup in position to be the leader in the still-emerging field of token-based compensation.
O'Friel cofounded Toku with Dominika Stobiecka, a veteran banker who spent a stint at the Federal Reserve and has also worked at DAOs. The pair met in Tokyo where they brought on gaming CEO Michael Carter, who helped launch the company and is serving as chairman of Toku's board.
Other investors contributing to the funding round include firms like GMJP, OrangeDAO, Reverie, Quantstamp, and Next Web Capital, and angel investors like Protocol Labs founder Juan Benet and Cameron and Tyler Winklevoss.
