Treasury Management For Web3 Startups

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As a startup founder, you’re focused on multiple things – business development, fundraising, product, hiring. The list goes on! However, one aspect early stage startups overlook is treasury management – what to do with the funds they’ve already raised.

If you’re an early stage startup founder, you must be thinking – treasury management is only for large companies, what do I need it for? This is where you’d be mistaken! Treasury management is applicable at all stages of a startup, and can make a huge impact on runway for even the youngest of companies. For example, if you’re able to optimize your yield and earn 1% on $1 million in your treasury, that’s another $10,000 you have at the end of the year. That’s not a small amount!

So how do you approach treasury management? Here are a few steps to take.

Step 1: Outline your goals

The first step is to outline your financial goals with your treasury. Are you looking to optimize your yield earning strategies? Or are you looking to hedge against volatility and risk in the tokens your treasury has?

For example, many DAOs hold multiple tokens in their treasuries. This strategy means they are exposed to the volatility of the tokens and crypto market – if 40% of their treasury is held in Ethereum, and the price of Ethereum drops by 5%, their treasury value will be down 2%. Thus, many projects diversify into stablecoins to avoid the volatility of the markets. This strategy is fairly common with NFT projects, which raise millions of dollars in Ethereum, and quickly convert that to stablecoins to avoid any volatility in their treasury. After all, their future expenses will remain consistent and not be pegged to Ethereum’s price!

Many projects also invest in yield earning strategies, such as DeFi protocols like Yearn, to earn interest on their holdings. With inflation high, the idle cash in your treasury is actually producing negative returns and is worth less with every passing day. So for example, if you’re a project that has $50 million, you may allocate $5 million into strategies that generate 2% to earn an extra $100,000 annually (enough to hire another team member!).

Step 2: Understand your risk threshold

Before allocating any funds into DeFi yield protocols, its important to understand your risk threshold and how you manage risk. Earning yield is a tradeoff between risk – the higher the return, the higher the risk. Therefore if you see 15% returns, it is likely that it is a high-risk strategy vs 1% returns.

Most organizations choose to be risk averse, and not invest in highly risky strategies – this is due to the fact that losing money has implications for the entire company, not just one individual. It’s up to you and your team how you allocate your funds, but the most common strategy is to only invest a portion of your treasury’s funds, and invest that into low yield, low risk strategies.

Step 3: Set up processes

It is critical in treasury management for startups, and especially for web3 startups, that you set up the correct processes. Having processes in place will ensure your funds are safe, and that the future of your project is secure.

If you’re investing in DeFi yield generating strategies, ensure:

  • Regular checks on the market and protocol’s liquidity to ensure your funds are safe
  • Threshold for how much profit you want to book, and ensuring you book that profit
  • Regular accounting updates

If you’re optimizing your treasury for token diversification, ensure that:

  • You have processes for token swapping (frequency, amount, accounting of the transactions)
  • Regular price checks and valuations of your treasury
  • Fall back plans should some tokens fall too low for your comfort

Step 4: Choose the right tools

Finally, it’s important to use the correct financial tools to manage your treasury. When choosing a treasury management software, you should account for the following:

  • Security – will your funds be safe? Where are they being held? Is the treasury management provider a custodian or just a tool for optimizing your treasury?
  • Features – what are the features you get with the tool, and are they the ones required for your organization’s treasury needs?
  • Access to Defi and exchanges – what integrations does the treasury management tool have? Are you able to access multiple exchanges for the best prices of tokens? What Defi protocols are available for you to invest in?
  • Fees – what are the fees? Are there any hidden fees?
  • Ease of use – is there a demo? How simple or difficult is it to use?
  • Customer support – is it easy to get help when required? What is the responsiveness of the team?

Thinking about treasury management for your web3 project? Speak with one of Mesha’s treasury experts – Contact us
Disclaimer – all the above information is for informational purposes and is not investment advice, and should not be construed as investment advice. Do your own research.

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