The Rise of Operational Crypto Wallets: How to Choose the Best One For You

As more and more companies are including crypto assets into their financial strategies, or are themselves building as web3 natives, CFOs need to understand the tools and technology that will not only keep their company’s finances secure, but also that will enable them to move and operate all of their crypto assets with ease.

If your company is looking to take advantage of DeFi, pay vendors or employees in crypto, or simply maintain a healthy crypto investment strategy, here are some important tips and recommendations for finding the right operational wallet for you.

Assess your risk profile

Crypto is notoriously volatile, but more importantly, working with it comes with several challenges around usability and security. This means that before anything, a CFO should ask themselves a few questions before looking into wallet solutions:

• Key management: are you and your team equipped to handle your own keys? This can be a complicated and confusing question and we will talk more about this in a second.
• Backup and recovery: In the event that I lose my private keys or a hardware device, are there ways to recover the funds stored in that wallet?
• Transaction policies and address books: Can I create rules and policies around who can transact, set spending limits, and utilize saved addresses? Are there protections in place to add another layer of protection from human error?

These can be daunting questions, but let’s start out with security and key management. This is one of the biggest questions and boils down to one major choice — custodial or non-custodial.

Custodial vs. non-custodial

With notable events like the notorious collapse of FTX, there understandably is a large push towards non-custodial solutions, especially when it comes to financial management for enterprises. But what is the difference between custodial and non-custodial wallets and how should a CFO choose which to use?

• Custodial wallet: a third-party controls your private keys which means they have full access to your funds. These third-parties however have traditionally offered a better user experience when it comes to on/off ramps and trading.Think of this like storing your money in a bank, where the bank can use a certain amount of the funds that you deposit for their own strategies.
• Non-custodial wallet: the user (or organization) is in full control of their private keys, which means no one else can ever access their funds without the keys. These wallets have traditionally required much more extensive blockchain knowledge and the user experience has been prone to user error. This option is more like storing your money in a private safe in your home, where only you or your family members know the combination.

Source: crypto.com

Recommendation: It has recently become a trend in the industry to rely on non-custodial solutions more and more, to avoid the downsides of any economic fallout or mishandling of funds.

CFOs need tools that function

Depending on how you are using crypto within your financial strategy, you might have varied functional needs. But, as crypto continues to become more and more mainstream with an expected 20% of large enterprises utilizing it for payments by 2024, it is important to know which functionality you will need to accomplish the tasks you want.

Let’s break down the essentials that can give financial teams efficient ways to operate:

Tracking your finances in one pane of glass

Organization is key when tracking finances, and operating with several different software and jumping between windows can get very tricky. Disorganization when managing treasury, payments, payroll, trading activities, or investments can lead to frustration, slowed operations and potentially increased errors. It is just as important to keep your crypto operations organized just as tightly as (if not better than) your other books.

Payments

Easy and fast payments are crucial to any business’s operations. There are lots of use cases where payments come into play, so lets touch on the most important ones:

• Recurring payments: this can include paying employees, vendors or any type of monthly bill. Completing these payments with crypto can become a very repetitive and time consuming task if you don’t use a wallet solution that can help automate them
• Batch payments: Traditional CFO tools allow you to send multiple payments very fast. Finding a crypto wallet that brings batch functionality into your crypto operations, makes your web3 transactions feel like you are still in web 2 (and this is a good thing).
• Automatic transactions: automation can come into play with things like payroll, but also can play a huge role in reducing risk for firms that are taking part in regular trading. Being able to program trades based on specific criteria can make your organization profits or protect it from potentially catastrophic losses
• Address book management: Especially when it comes to payments, having an easily managed address book with pre-approved addresses, blocked addresses, or nicely organized and named addresses that you transact with the most often, can help your team from having to type addresses again and again or committing any clerical errors.

Accounting

Most crypto wallets give a very straightforward transaction history that looks like a techy version of a bank statement. For a single user, this might be enough to keep track of transactions, but for an organization that is dealing with hundreds to thousands of transactions, this can make accounting a nightmare. CFOs need to be able to link their transaction history and data/crypto activities into accounting software to ensure accuracy and efficiency with reconciliation, tax accounting and even AML efforts.

AML and Compliance

Speaking of AML, CFOs are constantly doing whatever they can to reduce risk. It is vital that organizations comply with AML rules to both avoid fines and the potential attacks from malicious actors. An operational crypto wallet should offer connectivity to AML providers to ensure that your organization is fully supported.

Transaction policies

For each member of your team that has permissions to execute transactions, it is very important to ensure that there are some controls on how those transactions take place. Wallet solutions that enact transaction policies are programmable policies that denote which members of your team can execute which activities.

For example, let’s say one of your employees has access to an investment account so they can enact trades. Having a wallet platform where you can put a spending limit on that specific account and pre-approve which wallet addresses it can transact with, can give your team autonomy while ensuring there are some guardrails in place to keep your organization safe. Additionally, policies like limits on transactions over a certain time frame (per day/week/month), or placing (or removing) approval quorums on certain flows, can give your operations a much needed boost.

On and off ramps

Crypto is amazing, but the majority of the world’s traditional financial system (TradFi) still remains. This means that an enterprise-grade wallet needs to allow connectivity to traditional banks. On and off ramps directly to a fiat bank account make it easy for teams to seamlessly move between the traditional banks and the crypto economy with very little effort, and are an essential part of any financial strategy.

Multi-chain Support

If you are managing assets that live on more than one blockchain, it is vital that your wallet solution is able to support across those chains. Especially as there are more and more cross-chain protocols, Ethereum Layer 2s, and emerging Layer 1s, being able to access the benefits of each is paramount.

Pricing

Finance teams usually know their way around money, but sometimes wallet tooling comes with confusing and hefty costs. It is very important to understand what your team will pay for the operations you intend on executing. Be sure to uncover if there are hidden fees or large surcharges based on certain usage, before you sign any type of agreement.

Implementation time

How fast can you onboard to the wallet? This can be an overlooked criteria for many, but in practice, it can save your team time and money.

So what are the options?

Traditionally CFOs have used a combination of many solutions to accomplish these tasks, especially if they are not able to afford some of the expensive solutions that are out there. Let’s give a quick overview of the options that exist today, including a recommendation that will fulfill the needs for the use cases we talked about above:

• Hardware wallets: these are small devices similar to USB keys. They can be very difficult to interact with, taking a long time to get anything done, and at worst, the small devices can be misplaced. The clunky user experience is not suitable for anyone other than an individual.
• Software wallets: some organizations have simply used software wallets (ex: Metamask, Phantom, Rainbow) to manage their funds. These can be convenient as they come with browser extensions, but again, the usability of them is not meant for use at the scale needed by enterprises. Additionally, these are much less secure than options due to the fact that they are almost always exposed to the internet, making them a target for malicious actors.
• Multi-sig: a multi-sig is a smart contract wallet that allows to set transaction policies in the form or requiring multiple signatures (hence the name) in order to execute a transaction. These can be handy for things like DAOs that require extreme transparency and do not transact as often, but they come with limitations on connectivity to DeFi protocols, basic functionality, enterprise-grade features and can be very expensive to operate
• Enterprise-grade MPC (Recommended): For a wallet that can accomplish all of the above use cases and provides non-custodial features with sound recovery options, enterprise-grade MPCs are the clear leader in this field. MPC has become a popular technology amongst the crypto community as the best way to keep funds secure that drastically improves key management, and offers the freedom to create UI that makes interacting with the crypto economy simple.

Utila: Self-custody at enterprise scale

Utila is a leader in enterprise-grade MPC wallets, and it brings with it not only world-class security, but a usability that was designed to be used by CFOs and their teams every single day.

Create and manage wallets, set up users and roles, define transaction policies and limits, interact with any blockchain, effortlessly execute payments and on/off-ramp to your bank accounts. You can do all of this on one powerful platform that is backed by the cutting-edge cryptographic protocols.

If you are managing a financial strategy of an organization that does, or soon will, incorporate crypto assets, be sure to get in touch so we can help you optimize your crypto operations.

Additional Resources:

• If you are CFO that is still very new to crypto, here is a quick overview from Gartner about how it fits into financial strategy.
• CFO Insights: Unleashing blockchain in finance (Deloitte)
• 5 Ways CFOs Can Maximize Blockchain Technology (CFO.com)
• CFOs need to start thinking about digital currencies (Finextra.com)

If you are interested in optimizing your crypto operations, let’s connect:

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