As cryptocurrency market continues to grow as a market (current at about $3 trillion USD globally) corporate treasury leaders are starting to ask the question of what and how can I have exposure in this for my company’s treasury. Below are some thoughts on crypto corporate treasury management. This is not financial or technical advice here but it’s meant to serve as a starting point for such questions.
Here are some good general framework to get started with:
3 MAJOR APPROACHES TO CRYPTO TREASURY MGMT
(can be either 1 or a combination of the 3):
- Hold/custody crypto with an/series of institutions – These are some major crypto custodians in the US – NYDIG, Coinbase Custody, Anchorage, US Bank (launched more recently), Fidelity, Silvergate and Goldman and JPMC have such service for their UHNW clients.
Different parties have different requirements like Coinbase Custody has an approval process and needs at least $0.5M (which is way less than the amount you mentioned above), $0-10k implementation fee and 50 bps annualized asset management fee. It’s also worth looking how these these asset mgmt fee charged like quarterly or annual (quarterly makes sense for some institutional given the volatility) - Defi and Staking Crypto – Some of the custodians mentioned above can provide staking in one single view (meaning you don’t have to login into another company or screen to do defi staking. They usually ask you to keep anywhere from 60-75% of asset on hand and just stake the delta given the volatility risks on counterparty side. The platform and protocol risks for staking is relatively higher than just pure crypto exposure via somewhat of a passive custodianship.
- Run Operations with Crypto such as run part of payroll and/or vendor payments. Some custodians above provide this option. IT’s suggested to have at least multi-sig for any approval/wire/movement of crypto and I would recommend at least 3-4 point of contact on multi-signature (multiple approval process for transfer and deposit, usually recommended pair with with multi 2FA or M2MFA). The receiver (employee/vendor) needs to authorize this b/c there are subsequent things to take into consideration into sales taxes, employment taxes, income taxes, real estate depreciation write-off considerations etc.
SECURITY
cold storage with institutional custodian is preferred plus multisig for any approval/wire/movement of crypto and I would recommend at least 4 point of contact on multi-signature(multiple approval process for transfer and deposit, usually recommended pair with with multi 2FA or M2MFA).
Beyond the security of the storage of these assets, there are also series of securities protocols that can deployed to enhance the security of these wallet addresses. Here are just a handful of of the crazy security protocols deployed beyond the basic warm/hot/cold crypto storage concept like this:
- Horcrux – Shamir’s Secret Sharing (SSS) is unique – allows secrets to be split and distributed into shares and in order to get to the full secret, a predetermined # of shares are needed (not 100%) also known threshold.
- Tendermint Validator – similar concept to Horcrux, splitting ownership of these datas and information, and only x # of validations can access the information
- Key Encoder – allow public key to be split between secret and public key hash (support only Tzeros key today)
- GCP SSH Certificate Authority – Central Authority needs A central CA can then safely identify public keys, and sign them with a centrally trusted key and specific IP addresses that this key is authorized.
ACCOUNTING
Currently the IRS is treating these as assets (so more Balance Sheet implication and less P&L implication) and the situation is slightly fluid now on this front. The IRS and US Department of Treasury are still working through this. The BS vs P&L implication is important b/c that could potentially impact how and which of the 3 options above you select (as an example, if you plan to pay employees or vendors with this, and if IRS and Treasury is considered crypto an asset, then there could have a different implication vs. paying your vendor with USD cash…just something to consider)
Recordkeep total amount paid in USD, the # token it was paid and the price @ the time of payment and # of tokens down to 6-8 decimals points. Most crypto tax filing software like TaxBit and the likes can provide more guidance on this front.
CRYPTO ASSET SWAPS
Crypto asset swap comes with a transaction fee (think of forex market but more fluid and easier to do) pay with x token and the end party will receive y token. Swapping is usually a bit on the higher end of the risk curve for simple crypto Treasury management.
FDIC INSURANCE
There isn’t really clear guidance on FDIC insurance across these holdings as relevant governmental stakeholders are still working through. But if the logic above if true on how crypto are considered ‘assets’ rather than ‘cash/Treasury’ then one can logically assume it’s not 100% FDIC insured.
Below are two good starting pieces you can go through to get a better understanding of the crypto custody markets.
Intersection notepad 