Corporate Treasury and flexUSD
I recently read an excellent article by Alex Song, the Head of Finance at Ramp, a US based FinTech company discussing the different ways Corporate Treasuries should look at and manage their balance sheet.
This resonated well with me as we have also spent a lot of time at CoinFLEX considering this use case and how brilliantly well flexUSD is fitted to serve this market. We know a couple of things as fact:
- FinTechs and other startups in the US raised $35bn or more in 2021 and many need credible use cases on how to generate yield on these funds.
- Their runways can be extended significantly by more effective management of these cash balances.
- Yields earned from bank balances are sub 1%
- These Companies need to have access to part of these monies on a daily basis and so don’t want to get locked into very long term investments.
The article by Ramp Capital explores all these questions and concludes that the most effective way to ensure that all the above points are best factored together is by using USDC stablecoins and investing in the issuer’s yield product, Circle Yield. Before using this product they said their investment portfolio looked something like this:
Once they started looking at the USDC corporate yield products they began to notice lower lockup periods and higher returns when compared to bonds:
You can see why they and other Corporate Treasurers would be excited. On one side you have a bond/debt portfolio mix generating 2.28%, with a 1 year duration or some form of lock up, and on the other side a basket of lock ups that generate 7%+. However even with the high yielding product, there are lockups involved.
Ramp suggests, and is indeed correct, that the reason why lockups are needed for other yield products is that the borrowers paying this yield are typically arbitraging the high basis returns in crypto futures markets. Whilst it is probably too much to go into a long discussion on basis in this article (there are plenty of online references), the high level summary is that with cash settled futures, these yields are not guaranteed and so unwinding these trades instantly due to redemptions (USDC>Fiat) could cause losses.
However, CoinFLEX.com’s physically delivered futures means that these basis trades can be delivered, meaning atomically unwound at any time, for no slippage. The downside of this immediate redemption optionality benefit is that rates are variable in nature. However, so far flexUSD has averaged 12% over the last year and so we are pretty excited that even though its variable, and future rates no guarantee of past rates, it’s a really good rate of return.
The case for flexUSD
This was fantastic to read as it finally showcased what we have been really bullish about at CoinFLEX, which is that the use case for flexUSD is exactly what these types of customers are looking for. The key takeaways are:
- flexUSD currently yields 7% as of the date of this medium piece but is instantly redeemable. It does not require the asset/liability duration or term structure mismatch that Corporate Treasurers need to create in the search for yield. No need for lockup periods of any kind.
- flexUSD can be readily minted via USD fiat or stablecoins such as USDC on CoinFLEX.US. The folks over at Ramp may be knowledgeable in the mechanisms to move from fiat to USDC stablecoin via Circle or Coinbase but not every treasurer has the time to get familiar with how crypto works. On CoinFLEX.US you can mint from a wire transfer, ACH push and at some point soon ACH pull.
- flexUSD pays interest on chain every 8 hours & this allows for better compounded growth rates of your funds beyond the daily rates.
- flexUSD can and should also be used within your Company for salaries & payments. We have many team members at CoinFLEX who ask to be paid in flexUSD, as it means they earn interest whilst holding their paycheck. This can also be the case with Corporates and the more of your team earn in flexUSD the less you have to go through the process of converting to fiat again for month end salaries. Let the team manage their own money. It’s exactly what crypto was built for: democratising finance.
Other than returns, what else should Treasurers consider?
- Like any crypto venue, whether it’s Circle or CoinFLEX, CeFi or DeFi, you have counterparty risk and as a Corporate Treasurer or Head of Finance, is something you need to manage. The market structure in crypto means that platforms like CoinFLEX have to act as the Exchange, Clearer and Custodian. I have written previously on parts of this aspect but what this means is that till we have the likes of BNY Mellon, State Street & other large balance sheet players enter into crypto and take over this role, we and others remain the counterparty from a funds perspective. State Street recently announced a partnership with Copper (a custodian) and are entering the space but we expect it will still take some while before the ideal solution is in place.
- Fully transparency on what is generating your yield. flexUSD is very clear in that the yield is coming from the borrow/land market on CoinFLEX.com which is an order book based publicly viewable market place that any qualified customer can view and trade. With other products, like Circle Yield, you have to take their borrowers word for what the funds are used for and have zero visibility as to what’s actually being bought/invested in with your funds.
Summary
Put simply, as a CFO, Head of Finance or Treasurer, we think the question you should ask yourself is:
“If you could use the same stablecoin (USDC), increase your yield, be fully liquid vs have your funds locked, have the assets be attested to daily versus once a month and have full transparency into where and how the yield is being generated, why would you not use flexUSD?”
When considering all the superior benefits that flexUSD brings, it seems a no brainer to make this product one of your cornerstone go-to market sources for yield. Not only has flexUSD returned higher yields historically compared to products like Circle Yield (12% v 7%) but it has no lock-ups and is instantly withdrawable.
In addition, not only are we fully transparent on rates but we will soon be announcing a partnership with a leading US audit house, where they will publicly attest to flexUSD balances and the assets that back it on the blockchain. No other stablecoin product has this feature of daily attestations and is an important step in creating full trust and transparency in flexUSD for all our customers on CoinFLEX.
Useful links:
https://coinflex.com/transparency/flexUSD
https://ramp.com/blog/how-stablecoins-increased-our-corporate-treasury-returns
