The corporate world is experiencing a mass pivot towards crypto. In the last year, Microsoft led a $20M investment round in a decentralized data project and has reportedly begun integration of a crypto wallet into the next generation xbox console. Amazon, Google, and Tesla are also major players in the crypto investment field, fueling a growing global trend of integrating crypto and stablecoins into corporate treasuries.
As more companies follow in the footsteps of these corporate giants, awareness around effective crypto treasury management is taking centerstage. Due to its relative newness and unique set of challenges, the playbook by which crypto treasuries must be managed diverges from the traditional tried and true tactics.
Challenge 1: Volatility and Risk Management
The bottom line is crypto markets are volatile. In a matter of days, in 2018 Bitcoin dropped by 45% only to be followed by an immediate 13% rise. And over the last ten years, the price of one Bitcoin has experienced a more than 2,054% increase. While crypto’s volatility has been a wide source of critique, it has simultaneously been one of its most powerful draws.
From a long-term investment perspective, short-term price drops and crypto winters are of little concern. When assessed through the lens of treasury management, however, they present a more immediate threat. Liquidity issues and the inability to cover operational expenses due to price volatility can represent the downfall of a project. In order to ride the waves of price fluctuations and to effectively manage risk, it’s critical to maintain a treasury with enough stable assets, such as stablecoins, to cover a year’s worth of expenses. This liquidity reserve must first and foremost take into account payroll.
Hedging risk and volatility while ensuring that payroll can be funded in crypto, Rise has developed a payroll platform that streamlines payments, compliance, and crypto treasury management. Whether a company holds a full or partial treasury in crypto, Rise has an option for funding payroll through crypto in USDC or with a traditional fiat bank account. The ability to fund payroll in either crypto or fiat allows for a company to more effectively manage their liquidity; through Rise, payments can be made in the asset that is currently more stable, and the chosen currency can change month by month.
At the moment a payment is sent to employees or contractors, Rise ensures a seamless conversion to USD for compliance ease. This method not only minimizes the volatility typically associated with crypto but also simplifies the tax implications for both parties involved. Because the crypto supported by Rise for funding payroll is USDC, an additional level of stability is guaranteed since USDC is a stablecoin pegged to the USD. When the conversion from crypto to USD occurs, the value of the currency remains consistent and no taxable event is triggered, resulting in protection for both employer and employee from market fluctuations and reporting requirements.
Once a payment has been sent to the employee, they have total freedom to choose the currency in which they receive their payout, from 100 cryptos and 90 local currencies. While all tax reporting has already occurred in USD, employees have increased flexibility to decide how they want to manage their finances. They have the option to receive their payout in crypto directly to a digital wallet and connect to the DeFi ecosystem or to receive funds in fiat currency in a traditional bank account.
Challenge 2: Integration with Traditional Financial Systems
Despite a growing number of businesses accepting crypto payments and companies incorporating digital assets into compensation packages, traditional financial systems have been slow to embrace crypto integration. It is common practice for banks to either deny services entirely or to flag accounts of crypto businesses and arbitrarily freeze funds. This makes it an obstacle for crypto and web3-native companies to operate in a hybrid crypto and fiat environment. While many crypto companies may want the option to compensate their workers in fiat, with traditional finance’s current infrastructure, this can be near impossible to achieve.
For effective crypto treasury management, having access to funds in fiat currency provides serious advantages. There will inevitably be operational expenses that necessitate payment in fiat, and either having that cash on hand or having the ability to seamlessly convert between crypto and fiat is crucial. An issue that many web3-native entities such as DAOs run into is having to sell at a loss due to market downturns and the immediate need for liquid assets. This can deliver a hard hit to crypto treasuries, and highlights the simultaneous need for companies to hold stable assets and their current lack of access to traditional banking.
Stepping in as an intermediary, Rise provides a solution to address this challenge to crypto treasury management. Through seamless routing between crypto and fiat, Rise allows for web3-native companies to hold their treasury in a digital wallet while accessing worker remuneration in fiat currency. Rather than operating at a loss and shouldering costly conversions between crypto and fiat, Rise automatically routes USDC to USD. Companies can access funds in fiat immediately without having to operate within the confines of traditional financial systems.
Challenge 3: Accounting and Reporting Complexities
While many companies are interested in integrating crypto into their treasuries, one of the most significant barriers to entry is the convoluted reporting that inevitably accompanies crypto transactions. The lack of crypto integrations into traditional financial infrastructure requires every crypto transaction to be manually converted into its equivalent fiat fair market value at the time of the transaction. For large companies with high transaction volumes, this is not a scalable solution. Without external assistance, if a company is issuing crypto payments to an extensive roster of contractors across multiple jurisdictions, the risk of inadvertently violating compliance regulations is high. As global restrictions become more widely enforced, the repercussions of noncompliance become increasingly costly.
An added layer of complication is introduced when employing a widely-distributed net of contractors due to the ever-changing regulatory reporting requirements across jurisdictions. While most jurisdictions require some form of AML and KYC procedures, these can range greatly and must not be violated. Tax reporting will also look different depending on where a company is located. While in some countries, every crypto transaction is legally mandated to be reported and constitutes a taxable event, other governments do not require such comprehensive reporting and not all transactions are subject to taxation. Specifications may change region by region but the grave consequences of violating compliance laws are devastating no matter where a company is located.
The fear of noncompliance should not prevent a company from holding a crypto treasury; there are tools built for addressing these concerns and ensuring that all tax and employment regulations are abided by. Along with issuing crypto and fiat payroll, Rise provides a comprehensive compliance layer. From onboarding to payouts, compliance is streamlined for all transactions. Through Rise, companies can run KYC checks, with systems in place for ensuring anonymity for DAO members. Due to Rise’s automatic routing of payments into USD, compliance is further streamlined and simplified, making reporting for both companies and employees effortless.
Challenge 4: Security Concerns
Among the foremost threats faced by crypto treasury managers is safeguarding funds against cyber attacks and fraud. While the crypto space has undergone many security iterations, in 2022 alone, $3.1B in crypto was stolen by hackers. A robust security infrastructure must be immediately established when managing a crypto treasury, with close attention put on which DeFi platforms are used for transacting; hackers targeted DeFi protocols, making them account for 82.1% of all crypto theft victims.
To avoid the points of vulnerability that made DeFi protocols more susceptible to hacking, one strategy for crypto treasury management is ensuring that all transactions take place through highly secured networks. The moment at which money has been deployed is the moment of greatest risk. If payroll is issued in crypto, this means that each month, a company exposes their treasury to risk of fraud and cyber attacks. While some level of risk exposure may be inevitable, as is the case with TradFi as well, there are widely available solutions for risk mitigation.
When exploring the most secure options for sending and converting crypto, Rise stands out amongst the competition due to its well-established security protocols and safe transaction processes. Built on the Arbitrum network, a Layer 2 known for its robust security infrastructure, Rise ensures that all payments are issued leveraging top-of-the-line security technology.
A key component of the Rise ecosystem is the RiseID, a unique, self-sovereign on-chain identity. The RiseID is minted by all users after passing KYC and allows employers and contractors to securely interact within the Rise platform. Employers can initiate pay schedules, approve time sheets, and send payments while contractors use the RiseID to withdraw their wages. The added layer of security provided by the RiseID minimizes the risk of fraudulent transactions. Its blockchain-based infrastructure ensures transparency, efficiency, and safety.
Hand in hand with the RiseID are Rise’s payroll smart contracts. They allow for a new level of automation through their instant deployment once set tasks, timelines or milestones are completed. Like the RiseID, these blockchain-based contracts live on the Arbitum blockchain and leverage its advanced security systems.
Effective Crypto Treasury Management with Rise
ZenAcademy, a content media company, turned to Rise as a treasury management tool for streamlining currency conversions and ensuring global compliance. As a web3-native company, ZenAcademy held their treasury in ETH in a digital wallet but wanted the option to pay their international contractors in fiat currency. Finding a solution that provided automated routing was important because it addressed both the compliance challenges associated with compensating employees in crypto and the needs of certain workers to receive wages in fiat currency.
Through Rise, ZenAcademy is able to directly connect their digital wallet to fund payroll and seamlessly convert ETH into USDC. Rise then automatically routes the USDC to USD, ensuring that all regulatory requirements are met. Once received, ZenAcademy’s employees can connect to the Rise platform and use their RiseIDs to withdraw wages in either fiat or crypto, to a traditional bank account or a digital wallet. At the end of the day, ZenAcademy has the freedom and the flexibility to hold their treasury in their preferred currency while ensuring that payroll is compliant, secure, and scalable with Rise.
Simplifying and Securing Crypto Treasury Management
The main challenges facing the effective management of a crypto treasury center around volatility, security, reporting, and a lack of TradFi integrations,. While on the surface these factors can appear daunting, with the right tools, they are easily overcome.
Rise provides a comprehensive solution addressing the key facets of crypto treasury management. Through its TradFi compatibility and blockchain integrations, Rise bridges the gap between web2 and web3. Schedule a demo today to learn more about how to effectively manage your crypto treasury with Rise.