Credix & Mean — Blog 3: Treasury Management Best Practices.
Credix and Mean have been working closely together for months, implementing best practices regarding security, treasury, product development and compliance. We thought it would be of interest to share our insights with the broader (web3) community. This is the third piece of a three part blog series focused on Treasury Management in collaboration with Mean.
“You plus me, it equals better math” — Fabulous, You Make Me Better
Turmoil. Fear. Devastation. The cryptocurrency industry has been gripped by unprecedented tumult over the past several days as some of its largest and most influential players have stumbled. During this time, customer funds have been frozen on centralized exchanges and liquidations have piled up. This systemic event is being called crypto’s “Lehman Moment” by many. We are all impacted, one way or another, and the full ripple effects will not be known for some time. Though we are all unavoidably impacted, there are still protective measures that we can take to safeguard ourselves against similar incidents in the future.
For example, we can all immediately pay closer attention to proper asset allocation and diversification; we can all take ownership of our keys with a cold storage wallet or, in the case of a collective, a multisig wallet; and we can all take this time to review our approach to asset management to ensure we are following best practices. These types of landmark events are opportunities to assess, learn, and improve. Unfortunately, systemic events are inevitable, so it’s on us to take all precautions to protect ourselves as much as possible.
One plus one can equal three with the right inputs. Credix and Mean are fortunate to be building with the support of a network of top-tier partners. We have partnered with the best and brightest, from equity backers, to debt investors, to service providers. This Mean + Credix partnership is a shining example of our shared dedication to collaborating with the preeminent teams, both in and outside of DeFi. It’s a case of one plus one equaling infinity.
Working closely with Mean allows Credix to provide debt investors with the best possible experience as the team strives to facilitate the seamless flow of millions of USDC across borders in the safest, most compliant manner possible. Those investors trust that their funds will be safely transported, and Credix trusts that the investors will safely manage their funds. How to ensure both goals are met? How to provide the safest possible asset management solution? With a well-built multi signature wallet.
Some of the world’s leading credit funds are investing on the Credix platform. Some of these multi-billion dollar funds, which do not have deep cryptocurrency experience, will ask for self-custody guidance. In the world of being your own bank and owning your own assets, the first question these investors ask is “what wallet should I use and who should control it?” Credix typically recommends a multi signature wallet solution, such as Mean’s SuperSafe. As outlined in our most recent blog, security, usability, and privacy all wrapped in a user-friendly interface is critical to proper private key and, therefore, asset management. When assessing the multisigs benefits, investors see how this type of wallet delivers security through a threshold multisig, which means that multiple individuals hold sets of private keys with which to approve transactions, but requires a majority of those individuals (e.g. 2-of-3) to sign a transaction in order for any assets to be moved. This adds a layer of social consensus on top of the cryptographic security; protection on protection.
Then, the focus shifts to the usability and user-friendliness of select multisig wallets. It sounds complicated, but thankfully solutions such as the SuperSafe exist. With Mean’s multisig, for example, multiple private key holders are able to effectuate transactions with a quorum. Thus, with the SuperSafe one member of a 2-of-3 wallet could be off the grid on safari in Africa and the other two key holders could still execute a transaction. The alternatives, a 3-of-3 or single key holder, would require all individuals to sign the transaction which can cause delays and missed opportunities.
Upholding this security and usability, is the backbone of private key management: privacy. The adage “not your keys, not your crypto” rings true. User protections such as multi-factor authentication are essential. Mean’s SuperSafe takes this one step further by requiring no KYC / KYB which maintains complete user anonymity. This not only protects the user’s keys, but also protects their identity for personal safety reasons. The multisig wallet is an optimal private key and asset management solution for the multi-billion dollar funds entering the world of DeFi. The SuperSafe from Mean provides an excellent solution for blue-chip investors, such as the ones using Credix’s platform, which is one of the many reasons this partnership is so valuable.
A multisig wallet, such as the SuperSafe, is not only ideal for traditional investment firms, but is also well-suited to serve the needs of protocols managing their treasury assets. Envision a protocol with a significant treasury balance which is used to act as a buffer of last resort and also cover operational costs. The protocol would benefit enormously from the layers of security, usability, and privacy delivered by multisig wallets to appropriately manage its assets. But the protocol has another complication to consider: What is the proper treasury asset allocation?
Treasury management, as discussed in the first post of this series, is critical to a protocol’s success. There we explored the importance of a diversified treasury portfolio focused on capital preservation, liquidity, and income, outlining how to achieve each pillar of this investment strategy. Surveying the DeFi ecosystem, it is clear that many protocol treasuries fall significantly short of meeting even two of these criteria. Many hold almost entirely their native token while some others idly hold un invested USDC as it loses purchasing power. Credix’s goal is to help solve these shortfalls.
With the full picture of a well-structured treasury in view, investors can see how well Credix’s Liquidity Pool fits into this framework. The Liquidity Pool invests in the senior tranche of all active deals across a marketplace, thus providing protection via the waterfall repayment schedule and also through deal diversification. An investment in the Liquidity Pool is an investment in the safest possible position of multiple, currently eleven, individual deals. It is a diversified, protected strategy designed to deliver capital preservation.
This buffer offers protection, but does not always guarantee usability. For that, protocols need liquidity in their treasuries to cover day-to-day expenses. The Credix LP Token is not designed for YOLOing around the DeFi ecosystem, but it does afford the holder some means of liquidity via ongoing repayments and, soon, a planned OTC marketplace for token holders to exchange their assets with other whitelisted wallet addresses. However, this liquidity bucket of the treasury should be filled primarily with reputable stable coins which, all else equal, can be expected to maintain their on-chain value today, tomorrow, and beyond.
As Steve Carrell famously asked, “Is it true that if you don’t use it, you lose it?” Well, in the case of capital, yes. Purchasing power erodes as on-chain prices reflect off-chain inflation. Capital must be invested and generating returns in order to protect against this depletion. Further, by investing, protocols can grow their treasury balances to better protect against losses and cover expenses via income-producing options such as capital gains and yield generation strategies. “Buy low, sell high,” an example of the former strategy, has theoretically unlimited upside, but also significant downside with a market crash. Yield-bearing strategies might offer limited potential upside, but, in the right cases, should offer protection in the form of underlying collateral. The Credix Liquidity Pool is an example of one such case. Its targeted 12% APY delivers investors a robust stream of income which is derived by overcollateralized loan obligations to real, hard assets. In the event of a default, specialized firms would liquidate the collateral to return investor capital thus protecting against significant loss of principal. Treasury asset diversification is critical and, with zero missed payments or defaults to date, an option such as the Credix Liquidity Pool fits well into the treasury basket to help protocols achieve capital preservation, liquidity, and income.
Building a war chest of capital is hard, but Credix and Mean are striving to make managing that trove easy through this partnership. Investors and protocols managing their assets with the Mean SuperSafe can expect security, usability, and privacy. This is why Credix uses the Mean SuperSafe to manage their own assets. Likewise, Mean’s treasury recently invested in Credix’s Liquidity Pool to not only preserve its capital in the Senior diversified position, but also generate income. This Mean + Credix partnership is supercharging our collective mission to revolutionize the world of finance. When great teams join, greater things happen. Join us. Let’s all take this moment to learn and grow more resilient.
Credix is a global platform that provides liquidity against novel, tech-enabled, tokenized assets. Credix provides on-chain asset-based financing to innovative non-bank lenders in Emerging Markets, focusing on Latin America.
The team at Credix has built deep expertise within specialty finance, financial technology, and decentralized finance. This has allowed them to create a unique platform for liquidity providers, underwriters, and borrowers, with a standard offering for early-stage companies and more tailored solutions for growth and scale. Credix’s end-to-end process is tech-driven, leveraging the latest data and blockchain-based technologies.
The platform has provided credit against receivables to a tech-enabled SME lender, a multi-tranche facility for car loans, and liquidity against B2B SaaS recurring revenue streams. Credix is moving the $800 billion private credit market into the digital era.
Mean is a censorship-resistant, user-friendly, self-custody, permissionless & trustless bank bringing everyday banking workflows and real-time finance to crypto and DeFi. People and businesses from around the world can create and manage international accounts with thousands of assets like stable coins and tokens, as well as access several capital products like deep liquidity markets, a decentralized exchange, and access to several investment vehicles. DAOs, projects, and organizations have access to asset and risk management tools like multisigs, treasuries, payroll, payments and collections. Learn more about Mean on the official website, or go to the application.
Originally published at https://medium.com on November 14, 2022.