Cryptocurrencies have changed the world of finance, and their importance keeps growing every day. A great way for companies looking to leverage this major innovation is to integrate digital assets into their treasury management strategy. In this article, we will explore the benefits, challenges, and best practices for succeeding in this field.
What is Crypto Treasury Management ?
Crypto treasury management involves managing a company's financial assets in the form of digital currencies, such as Bitcoin or Ethereum. This differs from traditional treasury management, which primarily relies on fiat currencies and conventional financial instruments like stocks, bonds, or derivatives.
Imagine a world where money transfers are as swift as a breeze, secure like a fortress, and light on the pocket.
This is the future that blockchain technology promises to bring us. Blockchain is a revolutionary technology that has the potential to change the way we make payments around the world. By eliminating the need for third-party intermediaries, blockchain enables instant international payments, making crypto treasury management simpler and more efficient.
Onyx and Ripple are two examples of blockchain-based payment platforms that are changing the way cross-border payments are made.
- Onyx: Onyx is a blockchain platform developed by JPMorgan Chase that is designed to improve the efficiency and transparency of wholesale payments, through a permissioned blockchain, which means that only authorized participants can access the network.
- Ripple: Ripple is a blockchain-based payment protocol that is designed to make cross-border payments faster and cheaper. Ripple uses a unique consensus mechanism called XRP Ledger, which allows for transactions to be processed quickly and securely.
Benefits of Blockchain for International Payments
Blockchain technology offers a significant transformation in international payments, redefining the way businesses transact globally. This innovative solution provides various benefits:
- Speed: Blockchain transactions can be processed near instantly, compared to days or sometimes weeks with international bank transfers. As the World Bank highlights, despite the use of SWIFT messages in traditional bank transfers, and recent efforts to accelerate the process, the actual transfer of funds often takes several days (and can take weeks in extreme cases).
- Security: The use of distributed ledgers to record transactions means that every participant in the network has a copy of the ledger, and each transaction is verified by a consensus mechanism before being added to the ledger. This makes it very difficult for any single party to tamper with the data or alter the transaction records. It gives businesses peace of mind, knowing their crypto business account and assets are secure while being transferred from one country to another across the globe.
So why do we hear so much about hacks in crypto?
Wallet encryption is secure. It would take centuries, possibly millennia, to break the encryption of a private key with current technology. Wallet hacks happen because of the way we fail to secure our wallets.
Smart contract-based incidents on DeFi protocols on the other hand represent a large portion of web3 hacks, making up 82% of all cryptocurrency stolen by hackers in 2022. Cross-chain bridges smart contracts are particularly targeted by hackers (64%).
A 51% attack on the blockchain network is another type of attack, while improbable. In this, an attacker controls over half of the network’s computing power. They can manipulate transactions and create false ones. This can harm smart contract security by leading to asset theft or contract changes. Thankfully, the bigger protocols such as Ethereum have too much computing power for them to be realistically hackable. The longer a blockchain exists and the more new users it attracts, the less likely it is to suffer a 51% attack due to its growing hash power.
- Transparency: All blockchain transactions are recorded on a public ledger, simplifying cryptocurrency accounting for businesses and making them easy to track.
- Traceability: The decentralized nature of blockchains allows for precise and secure tracking of transactions and balances. In addition, the FATF requires that countries collect identifying information from the originators and beneficiaries of domestic and cross-border transfers, including cryptocurrency exchanges, wallets, NFT and DeFi to create a suitable AML/CFT audit trail.
- Cost reduction: Transaction fees associated with cryptocurrencies are often lower than those of traditional banking services due to the absence of intermediaries. According to a report from Flagship Advisory Partners in 2023, the average bank charge was 2.5% (includes FX spread and transaction fees). In comparison, a stablecoin transaction (On-ramp fees + Network fees + Off-ramp fees) totals roughly 0.2% + network fees, usually between $0.35 and $5.00. The savings can be sizable compared to a standard cross-border wire.
Challenges in Integrating Crypto treasury management for businesses
Despite its benefits, businesses encounter various challenges in embracing blockchain technology. These include:
- Complexity: Blockchain and digital assets are a complex environment to navigate, and understanding and implementing a crypto treasury management can be challenging without proper guidance.
- Tax & Regulation: There is still no clear regulatory framework for cryptocurrencies, which can make it demanding for businesses to be up to date with cryptocurrency tax compliance. However, the advent of the Markets in Crypto-assets (MiCA) in the EU is a promising move towards better-defined regulations.
- Lack of awareness: Many businesses are still unaware of the benefits of accepting and executing stablecoin payments. As crypto adoption grows and proves itself as the better solution, more and more businesses will integrate blockchain as part of their internal treasury management tools.
- Few All-in-One Service: Currently, only a handful of players such as Fipto offer a comprehensive all-in-one service platform for businesses that can streamline the process of getting started with a crypto treasury, offer instant international payments, and provide a secure, regulatory-compliant and audit-ready solution.
- Confidentiality: How can blockchain be verifiable by the public and yet anonymous for your company transactions? Many solutions exist to make sure companies properly set up their wallet infrastructure. Some solutions include mixing services, stealth addresses (also called ECDH address), Ring Signatures or Zero-knowledge proof (zk-SNARK). This article covers a great variety of options to ensure transaction confidentiality.
At Fipto, we give you the opportunity to generate as many wallets and crypto addresses as you want for incoming payments. This allows you to allocate one address to each unique partner or even to each invoice. For outgoing payments, they are processed from an omnibus account, which prevents the recipient from tracking your funds or your wallet balance.
If you simply use a traditional non-custodial wallet, anyone can track your transactions on the blockchain. This means that anyone who knows your wallet address (such as your suppliers or clients) will be able to see all of your transactions, including your balance and the details of each transaction. With Fipto, you can maintain your privacy and security by using separate wallets for each partner or invoice. This way, your recipients will only be able to see the transactions that relate to them, and they will not be able to track your overall balance or transaction history.
Here are some of the benefits of using Fipto's omnibus account for outgoing payments:
- Privacy: Your recipients will not be able to track your funds or your wallet balance.
- Security: Your funds are held in a secure account that is not linked to your individual wallet addresses.
- Convenience: You can easily manage your outgoing payments from a single account.
Practical Tips for Managing Crypto-Related Risks
To effectively manage the risks associated with using cryptocurrencies in treasury management, here are some practical tips:
stablecoins are price-stable digital currencies backed by a fiat currency, such as the US dollar. Stablecoins combine the benefits of borderless cryptocurrency with the price stability of traditional sovereign currencies.Fiat-backed stablecoins with audited proof of reserve offer the best security, such as:
- Tether (USDT): publishes quarterly attestations that detail what makes up the reserves.
- USD Coin (USDC): USDC is specifically pegged to the US dollar on a one-to-one basis. This means that for every USDC token in circulation, there is supposed to be one US dollar held in reserve. USDC is managed by regulated financial institutions and issuers, which conduct regular audits to ensure that the reserve funds match the circulating supply of USDC tokens.
- TrueUSD (TUSD): the first stablecoin with real-time audits and on-chain proof of reserves; where each token is fully backed at a 1:1 ratio by the U.S. dollar.
- Société Générale Forge’s Coinvertible (EURCV): a fully collateralized coin created by the famous bank.
We make no representations or warranties about the accuracy or completeness of any information about stablecoins in this article. Stablecoins are issued and audited by third-party entities that Fipto is not affiliated with.
Adopt corporate wallet best practices
- Ensure to replicate your corporate treasury processes with multiple wallets segregated per usage (client collection, supplier invoices payment, internal treasury…)
- Replicate your standard cash management governance on these wallets (multi signature, multiple users with relevant rights, payment notional limits…)
- Whitelist your beneficiaries to abstract the difficulty of handling wallet addresses which are prone to errors when processing a payment
Use a compliant solution
Make sure the solution you go for is complying with best practices for tax, accounting and regulation: solutions like Fipto are registered with AMF (French Financial Markets Authority).
Making Blockchain Simple with Fipto
Fipto is your unique all-in-one solution for crypto treasury management, making it easy for businesses to benefit from the best blockchain has to offer:
- Send and convert fiat and digital currencies from the same place
- Secure your transactions with multi-role access management, multi-signature and 2FA
- Enjoy robust and audit-ready valuation across all digital assets
- AML/CFT compliant
- Audit-ready with real-time valuation
Let Fipto guide your business into the blockchain era, turning complex challenges into straightforward solutions.