On the surface, it seems really simple — you need to manage the cash inflow and outflow in a project. It’s the same for every project. While that mantra does not change, broadly speaking, the mechanics, minutiae, and reasoning all do, depending on what you are trying to achieve. When you throw in the fact that crypto is so dynamic and in need of refined, malleable strategizing, proactive treasury management becomes increasingly essential to your success. This becomes especially true if effective investing is propping up the development of your product.
What is Treasury Management and why is it important?
Treasury management is essentially effective management of your capital’s liquidity. It means maintaining enough liquidity to cover your runway while putting these capital assets to productive use.
Treasury management is important on two particular fronts:
- It needs to keep everything afloat while making sure you have enough liquidity to meet any capital demands that come up
- It leaves you primed to move capital into areas where it is going to be savvy as an investment.
For many, it is the best means of risk mitigation as it optimizes cash flow, rebalances investments where appropriate, and takes you out of risky positions. However, in crypto, this can be a challenging endeavor due to the abundance of opportunity (cognitive overload), DeFi-specific risks (liquidity, smart contract, etc.), as well as the resources required to effectively execute treasury management functions.
While liquidity management is arguably the key role of treasury managers or treasury management teams, there are underserved in terms of the tools that will allow them to perform efficiently and effectively. These include reporting tools that enable a proactive approach to forecasting, risk monitoring and alerting tools to aid in decisions to risk on/off, and tools to automate compounding and rebalancing capital into a better investment opportunity.
Who would benefit most from Effective Treasury Management?
Crypto is such an exciting space because it is giving rise to so many innovative, disruptive tools and platforms that are completely reshaping the financial landscape. However, if you are managing the functionality of a Web3 project, you want to be focused on building the project, not managing the project’s capital. This is the case for so many projects; they have incredible developers but no one to handle their treasury which can lead to disaster even if they have the best idea in the world.
Your project may decide to form a decentralized autonomous organization (DAO) and have a sub-team/guild be responsible for treasury management. This would allow your money to be put to work effectively, while the core team focuses on product development, but it still runs into planning, operational, and execution risks. This is where Capital-as-a-Service (CaaS), the ability to outsource treasury management functions, and Exponent, can help you.
With Exponent, you get access to your own bespoke, non-custodial vault with pre-defined strategies that adhere to risk parameters your team is comfortable with, meaning you will never be blindsided. This is all supplemented by a dedicated dashboard with a risk monitoring and notification system. As your CaaS provider, Exponent can help alleviate the pain and frictions related to managing your project’s capital.
If you are part of a burgeoning Web3 project or DAO and you’re wondering if you should leverage an outsourced treasury management provider, ask yourself three things:
- Does your team have the bandwidth to source all the available investment opportunities within DeFi?
- Can you confidently and thoroughly identify risks, not only within your current capital inflows and outflows, but the projected risks associated with potential investment decisions? This can take myriad forms like liquidity risks, smart contract risks, impermanent loss, and much more.
- Can you commit someone full-time to manage your positions across different strategies to ensure your investment goals are met?
If the answer to any of these questions is no, you should give CaaS serious consideration.
Treasury management is a means to not only balance the capital in your business but also to make sure that idle cash is invested and managed wisely. There are so many financially rudderless projects in the Web3 space that have a great project or an incredible vision for how they want to utilize the potential of Web3. But without a treasury manager, there’s a high chance they can be dead on arrival or not have enough runway to see their vision come to fruition.
Using Exponent and our CaaS offerings can not only keep your project going, but give you the means to push it to new heights. Just remember — opportunity, insight, and control is the name of the game.