Treasury Management in the Age of Digital Assets: Insights from Circle, Arca, and Fidelity

Mike Ippolito of Blockworks recently sat down with pioneers of the emerging digital asset economy "Treasury Management in the Age of Digital Assets" webinar.

Jeremy Allaire, Circle Co-founder and CEO; Rayne Steinberg, Arca CEO; and Ria Bhutoria, Fidelity Digital Assets Director of Research discussed the changing role of Treasury managers and how they can take advantage of the ongoing digital assets revolution.

Let’s review!

The Evolving Role of Treasury Management

Treasury management is essential to the smooth operation of corporations around the world, ensuring cash is available when needed to cover the universe of expenses and manage the risks of doing business. And while the growth of the internet has impacted more and more areas of corporate operations, many Treasuries have been largely insulated from these changes—until now. 

There’s a fundamental encroachment of software and the internet into the operations of what it means to be a modern business,” Allaire said. 

“One of the last bastions where the internet has not eaten up the infrastructure is the financial system. Crypto and blockchain fundamentally represent the internet absorbing the financial system, and what that means is when you think about the functions of a corporation, the function of the Treasury at the core of value storage and exchange is about to get really accelerated into this internet model. It’s the inevitable convergence of internet based systems and the modern corporation developing entirely new digital corporate forms.”

In addition to a changing technological environment, treasury managers are also under pressure to adapt to a macroeconomic landscape vastly different from that encountered by their predecessors.

“Treasury managers have generally been a very sleepy part of a corporation, the first rule of treasury management being not to lose any of your treasury,” Steinberg noted.

“The type of activity we’re seeing now, with treasury managers looking at alternative assets or engaging with stable tokens that take down transaction costs, and interacting with this new ecosystem of blockchain and digital assets, speaks to the environment where pretty much all corporations have been forced to go out on the risk curve.”

Managing Risk in a Shifting Macroeconomic Landscape

Treasury managers have always needed to monitor risks to their capital holdings. But the nature of those risks are changing as stimulus and recovery from the COVID-19 pandemic power a resurgent global economy, as Bhutoria explains.

“Treasurers manage different types of risk, which can include interest rate risk or exchange risk —especially for multinational companies—credit risk, and liquidity risk,” she said.

“In the past, interest rate risk referred to the impact of interest rates on debt service costs. But today, with rates at zero for the foreseeable future, I think that’s less of a risk. Interest rate risk is evolving to mean the loss of yield or income from excess cash that corporates may have had parked in risk-free or low-risk fixed income instruments. Now, they need to go farther out on the risk curve to earn a decent yield.”

For more than a generation, risks from monetary inflation have been relatively muted. But they’re now coming to the forefront, threatening to steeply increase consumer prices as well as the cost of capital investments.

“I think there was more uncertainty about whether we would see consumer price inflation last year, but I think the consensus is increasingly that we will, given the stimulus we’ve seen, vaccinations, and so on,” Bhutoria said.

“Asset price inflation isn’t as widely discussed, and one potential challenge is if a company holds significant capital in fiat currency that’s experiencing this monetary inflation, if there’s a simultaneous increase in asset prices, that could affect the purchasing power of the company’s capital when they’re considering M&A or other investment opportunities.”

In response to these macroeconomic changes, treasury managers are on the hunt for ways to protect their balance sheets from encroaching inflation. Capital markets supported by stablecoins like USDC have generated substantially higher yields than those found in traditional financial ecosystems, generating new opportunities for treasury managers to make the most of their capital.

“As people enter the world of digital assets, they very quickly see that the value proposition, in almost every aspect, is so transformative that they start to experiment and stay,” Steinberg said.

“And as things change around interest rates as one value proposition, there’s far greater utility for someone who starts to engage with this ecosystem.”

More Value For Your Digital Dollar

High yield digital dollar accounts from Circle are just one reason treasury managers might consider making an allocation into crypto assets. Once they get started, however, the benefits of commerce at the speed of the internet and leaving the legacy banking system behind are impossible to ignore.

“Our thesis is that as treasurers begin to use stablecoins to get some exposure to these yield markets, because they can’t afford not to, they’ll quickly realize the utility value here is really high,” Allaire said.

“Stablecoin yield accounts will be the gateway that gets treasurers into stablecoins as a payment system. They’ll say ‘Wow, digital currency is so superior to the way I’ve historically done business.’”

Circle Payments make it easier than ever to send dollar value around the world, faster and with lower fees than legacy banking alternatives. There are other advantages too, like always-on availability and protection from risks inherent to fiat currencies.

“Stablecoins running on public blockchains are available 24/7, which can be important for treasurers trying to avoid late fees or making emergency payments,” Bhutoria said.

“Another advantage of digital dollars is democratizing access to USD globally, allowing international companies without access to traditional US-based banking to address some of the risks associated with other fiat currencies.”

USDC: Gateway to the Future of Internet Commerce

Circle sits at the nexus of cryptocurrency, digital dollars, and the support every business needs to make their way through the emerging world of digital assets and blockchain-based commerce.

“A stablecoin like USDC is useful fundamentally as an internet dollar, you can transfer it around the world easily, quickly, securely, cost efficiently, in an open and interoperable way,” Allaire said.

“But the application of blockchains and smart contract technology is also being applied to commerce functions. Escrow protocols, invoice protocols, innovations in labor payments at the smart contract level. These commerce protocols run on the same public blockchain infrastructure and ride on top of the liquidity of stablecoins and other crypto assets.”

“These are breakthroughs in how commerce can be intermediated and that’s important to the treasury and businesses as a whole. I think we’re in the early innings of this, and we have no idea the incredible range of innovations we’ll all be able to plug into. That’s awesome, because it means the impact will be even greater than any of us have realized.”

Ready to join the digital revolution? Join the high yield business account waiting list or learn more about Circle Payments.