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Whether you're a beginner receiving payments in crypto assets or transitioning from traditional payment systems to crypto, the process of establishing an efficient, secure, and easily manageable crypto treasury management system can be scary.
We understand the challenges firsthand as we've been through selecting the ideal tool stack and setting up seamless operations before coming up with the idea which led to creating Bizzllet.
That's precisely why we wrote a comprehensive blog covering everything you need to know about crypto treasury management from start to finish. You will discover best practices and gain insights into selecting the right tools for effective treasury management.
Get ready to embark on your crypto treasury management journey by delving into the full article because we've got you covered every step of the way.
A crypto treasury typically refers to the digital assets held by an individual or organization. It represents the pool of crypto owned and controlled by the mentioned party.
The purpose of a crypto treasury varies depending on the project. In some cases, the treasury serves as a reserve of funds that can be used for different purposes, such as development, marketing, partnerships, or community initiatives. It provides the project with financial stability and resources to support its operations and growth.
The treasury may consist of the native tokens, as well as other crypto-assets acquired through investments, donations, or other means.
Crypto treasury management is the practice of carefully planning, managing, and using crypto assets held by an individual, DAO, or company while considering internal and external factors such as cashflows, expenses, regulatory compliance, and market risk.
The decision-making process regarding the treasury is typically handled by the project's founders and core team or governed by decentralized mechanisms, depending on the project's governance structure. These strategic decisions and actions must keep the finances stable so the company can run smoothly.
Crypto treasury management involves managing digital assets, which are known for their high volatility, especially in times of uncertainty, and require robust security measures. Companies, DAOs, and individuals in charge of the treasury must stay constantly updated on evolving regulations and leverage finance platforms so their balance sheet stays on track.
Traditional treasury management deals with financial instruments, operates in a more stable environment, and follows established accounting and regulatory frameworks. The traditional system is completely developed, and there is no experimenting as the best practices have already been laid down.
As we now witness the evolution of the crypto industry and its regulation, some aspects of crypto treasury management are converging toward traditional practices and slowly forming a footprint of how this type of treasury should be handled.
A crypto treasury management framework is essential for businesses that hold crypto assets, such as Bitcoin or Ethereum, because crypto assets have to be aligned with the organization's financial goals.
More and more individuals, SMEs, and big companies are opening their gates and adopting crypto as a payment option because they want to avoid the middleman (banks) and process faster and cheaper transactions. These include enterprises such as Microsoft, Tesla, and Starbucks. Here is a list of 250+ companies that are open to crypto.
The world is slowly recognizing crypto as cash-equivalent and shifting towards mass adoption, imposing a need for a safe way to guard these assets, manage them and have them ready to be used in day-to-day operations.
We briefly mentioned that crypto and traditional treasuries differ but slowly converge toward one another. Crypto constantly evolves, and new ways of doing things come up, as nothing is set in stone. However, crypto treasuries picked up some things from traditional practices. Let's explore them.
There are a few sayings in finance that no one can overrule or dismiss; one of them, and the most important for any operating business, is 'Cash flow is king'. Companies need cash flows to stay solvent and liquid to pay operational expenses and keep the business running. These operational expenses usually include software licenses, marketing expenses, salaries, audits, etc.
The cash flow has to be consistent. Part of it should be used daily, while the rest should be invested in yield-baring assets. Crypto created a revolution by introducing newer, simpler, and more lucrative ways to put money to work. The most common way to reinvest and multiply is to stake the crypto or to provide liquidity for DEXs and earn yield in return.
With traditional treasuries, companies allocate much of their cash flows into yield-generating assets like bonds and stocks. Still, crypto treasuries are known for being bound by the illiquidity of their native token and often miss taking advantage of this tactic.
Tip: If you engage in staking and investing in other assets, be careful which asset pairs you invest in, and only lock up a few resources to keep the company liquid. You can learn more about cash flow here.
Crypto is known for its high volatility compared to traditional financial assets. Crypto treasury management requires a deep understanding of the unique risks associated with digital assets, such as market volatility, regulatory uncertainty, and cybersecurity threats.
While still dealing with risks, traditional treasury management typically operates in a more stable and regulated environment, with an already established team focusing solely on risk mitigation.
Here are a few tips on how to battle with risk:
If you are expecting or experiencing a downturn in your portfolio, we recommend you also check out this article by a16z.
With regulation around the corner, regulators increasingly focus on crypto to address money laundering, terrorist financing, investor protection, and market integrity. For treasuries to maintain trust, legitimacy, and long-term viability, transparency is essential.
Here are a few compliance tips:
There are two main approaches to managing cryptocurrency assets. The first involves relying on a third-party custodian who holds your private keys and safeguards assets on your behalf. The alternative, generally considered preferable, is to adopt a self-custody solution (we will discuss this later). Ultimately, it all comes down to you choosing how to keep your assets safe and sound and ready to be used at any moment without compromising them.
Here are a few security measures to take up:
Asset allocation means strategically distributing a crypto treasury's funds across different assets and wallets to optimize risk and return. Most DAOs and organizations have their assets tied up in native tokens and can't sell them to diversify because that would drive down the price and result in a loss of voting rights. However, by diversifying their assets, crypto treasury managers can reduce the concentration risk of holding a single asset in a single place.
Strategies for Diversifying Crypto Assets:
Crypto treasuries management requires efficient and reliable tools to manage operations, monitor assets, and analyze performance. The right treasury management tools can streamline processes, enhance security, provide real-time insights, and improve decision-making for treasury teams.
An important thing we must mention (that deserves its own section đ) is the question of who has your private keys, or in other words, who has custody. There are two paths for organizations to take when choosing which way to go.
Self-custody solutions empower individuals and organizations to have direct control and ownership over their cryptocurrency assets. With self-custody, users manage their private keys and securely store their digital assets using wallets. Higher autonomy and security eliminate the need to rely on intermediaries. You already know the saying, 'Not your keys, not your crypto'.
Self-custody solutions allow individuals to transact and access their funds independently as well as set up multisig wallets. Multisig wallets protect your treasury from single points of failure because multiple people have to sign the transactions for them to execute. This is very important for your organization as it keeps your funds from being compromised and allows you to set up the treasury seamlessly.
Third-party custody solutions provide a service where a trusted entity, such as a cryptocurrency custodian or exchange, holds and manages digital assets on your behalf. This option is convenient, especially if you prefer to delegate the responsibility of securing and managing their assets to a professional service provider.
Third-party custodians typically implement robust security measures but don't provide insurance coverage if they get hacked or taken down. Moreover, relying on a third party means relinquishing both control and privacy, as you must fully trust the custodian to safeguard your private keys and assets.
We recommend self-custody; however, if you choose this path, thoroughly research and choose reputable custodial services and understand their security protocols and terms of service before entrusting them with your assets.
Recognizing the challenges individuals, teams, and companies face when managing crypto treasuries, we have developed a platform that simplifies the entire process, enhancing efficiency and security while ensuring a seamless user experience.
Our unique combination of MPC (Multi-Party Computation) technology and Account Abstraction sets us apart from other self custody alternatives. Unlike other options that implement either MPC or AA, our platform leverages both, further enhancing the security and functionality of the system.
We have incorporated several essential features to address the specific challenges of crypto treasury management:
With our self-custody, multisig platform, we aim to revolutionize how you manage your crypto treasury, providing features that empower you to navigate the challenges of the crypto space with confidence and ease.
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This blog post has provided a comprehensive overview of the critical factors to consider when establishing crypto treasury management. We have covered crucial aspects such as:
Armed with this knowledge, you are ready to set up a perfect environment for your crypto assets. If you liked our blog and thought it was helpful, we promise you that our platform, Bizzllet, will be even more beneficial. Open a Bizzllet account today, and forget about treasury-related nightmares.
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