Treasury Management

This is the final post (for now) in a 13-part Alpha Growth series breaking down the problems every blockchain project has and needs to solve to grow and scale. New to the series? Start here.

TLDR: proper treasury management is scalping volatility.

Remember that semi-famous story about Airbnb’s secret hedge fund that turned out to be generating $5M a month for the company?

Back when the story broke amid controversy over the company’s IPO plans, there was lots of debate. Was it scandalous and irresponsible or super smart and cool?

A lot of people in my sphere were saying, “They’re doing it wrong. Their job isn’t to be a fund. Their job is to generate revenue. They’re running out of TAM.”

But here’s the funny thing about crypto: if your blockchain project is at all profitable, you will be investing off the balance sheet as soon as possible. And if you’re not doing that, you should be.

Which leads me to the next problem every blockchain project faces as it grows and scales:

Problem 13: you need treasury management.

Treasury management is the key to mitigating volatility. At this point, you’ve spent months building the foundation of your blockchain project by successfully following all the steps laid out in this series. You need to invest that revenue strategically to ensure continued growth and sustainability.

Here’s a real world example: Digital Currency Group. Look at their portfolio. They have a mining operation (foundry), a major media publication (CoinDesk), an exchange with a wallet (luno), among several other revenue-generating businesses. From there, they invest off the balance sheet. The takeaway here: they have good treasury management.

And that’s great for them. But good treasury management matters or every blockchain project. Why?

Look around.

A lot of companies in the current market as of Summer 2022 are out of money. These are companies that were just recently worth hundreds of millions or even billions of dollars. Like literally two to three months ago, they were worth billions of dollars and now they are out of money. It’s because of poor treasury management. They didn’t want to be seen as taking money off the table and dumping into higher liquidity.

But they should have.

Myself included.

In the current landscape, we’re still seeing the fall out from Luna. Something like $40B of market cap got wiped. They messed up a lot of people. The result of that debacle is still running downhill every day. This was like the Lehman Brothers collapse, but in a much smaller market. The smaller the market, the more catastrophic. And sure, you can argue that these are unprecedented times. But the thing is that this can happen again. And the only way to mitigate the effects is with good treasury management in place from your early days.

Hindsight is, of course, always 20–20. What matters now is what you can do going forward. Now is the best time to use what’s happening to shore up your project’s treasury management while you still can.

So how do you do that? Part of establishing good treasury management for your blockchain project means asking questions like:

• When is the right time for us to start taking money off the table and investing it?
• What programs and infrastructure do we need to accurately understand things like float, fully diluted value and our actual market cap?
• What types of systems do you need to have in place in order to ensure you always have 18 to 24 months of runway in place?
• How much runway do you have at any given time in stables and in cash?
• Do I have co-founders or team members who can counter my perspective if I start to make high-risk, emotionally-driven choices?
• What rules can our team put in place that will govern our treasury management and help protect it from the kind of emotional decision making that comes with market volatility?
• What the buy back mechanism we’re going to use for our token?

You ask these questions so that you don’t end up like a company I spoke to recently. They were holding their entire treasury in ETH. At the beginning of the year, they had three years of runway. Now they have seven months. And this is no joke of a company. They have tens of millions of users.

You and your team need to do the work now to establish a treasury management framework and strategy so that you don’t end up watching all your assets sitting in one supposedly stable stablecoin evaporate in a week.

If you’re going to use complex mechanisms as part of your treasury management, you also need to have a team member whose job it is to manage that full-time. Otherwise, you’re going to get rekt. Thinking about using leverage? Put somebody on that full-time so you don’t completely blow it up.

The DeFi operations we’ve covered in the previous two posts are also part of good treasury management. Think about it:

• You launch
• You have your token
• You have a treasury

Once you’ve done that, how do you protect token price?

The answer sounds simple: you protect price by managing float (float = available token that is not locked up anywhere by contracts).

The answer sounds simple: you protect price by managing float (float = available token that is not locked up anywhere by contracts).

In practice, it can be complex. There are numerous ways you can protect float, including:

• Using an ICHI vault to create project-owned liquidity and protect token price
• Lockups with an option to extend
• Get listed on derivatives platforms so you can start to hedge
• Always be increasing token optionality

What will work best for you will depend on your project. It’s something we help clients navigate each and every day at Alpha Growth. Reach out if we can help.

If you’re interested in learning about more growth strategies for your project, we encourage you to connect on Twitter @bryancolligan. Join our Telegram for members-only alpha on projects we’re watching and DYOR resources for creating growth, credibility and engagement for your project.