On-Chain Cash Management: Thematic Takeaways From Partner Discussions

Overview

Recently, teams from both the crypto native and traditional financial services sides of the spectrum have launched tokenized US money market funds, T-bills, or comparable short duration products; some notable examples include offerings from OpenTrade, Ondo, Superstate, Matrixport, Franklin Templeton, OpenEden, etc. As a BD team, we’ve met with 20+ of these teams in the context of their deployment strategies and our mandate to drive the growth and adoption of Avalanche. Oftentimes, their go-to-market (GTM) strategies tend to focus on attracting on-chain capital; in support, they point to the large circulating supply of non-yield bearing stablecoins and the attractiveness of a non-crypto correlated, yield-bearing asset for better cash management and diversification.    

To verify and more comprehensively inform this thought process, we recently surveyed partners from across our ecosystem to learn how they think about their treasuries, stablecoin balances, and on-chain yields in the context of cash management and diversification. After receiving feedback from nearly 100 protocols, DAOs, hedge funds, venture capital (VC) funds, and other personas, we wanted to share thematic takeaways to help guide teams tokenizing assets in their business development and GTM strategies, and to help respondents get a sense of how their peers approach cash management. 

Primarily, we wanted to more fully understand: 

  • Where respondents held funds (on- or off- chain);
  • If and how they thought about yield on cash/stablecoins;
  • Whether they wanted to access US Treasury (UST) products on-chain;
  • If they were open to KYC processes; and
  • Whether and how better access to on-chain UST yields would alter their approach.

While some takeaways were more surprising than others, it’s clear that we’re still early in many ways and the debate around on-chain cash management is far from settled. Thank you to our partners who participated. We welcome your continued feedback, which has been invaluable in informing our approach to helping grow the Avalanche ecosystem. 

General Themes

Risk-Adjusted Yields Matter

Of those interested in UST yields, most are generally indifferent about accessing them on-chain vs. off-chain. The key consideration, rather, is identifying the better risk-adjusted yield. To that end, all else being equal, an on-chain T-Bill yield is perceived as an “inferior” risk-adjusted return compared to the traditional off-chain equivalent. For the smaller subset whose stables are “trapped” on-chain; however, it can be painful not having ready access to UST yields, particularly when DeFi yields have become so depressed.

Size Matters

Whether it’s a fund’s AUM or the size of a protocol’s treasury, the larger and more established a persona is, the less likely it is to consider accessing UST yields on-chain. Regardless of their mandate, large funds (especially in the US) have no problem accessing financial products through traditional means. For DAOs with large treasuries, balances have generally been held in a native token, which may not have been diversified during more favorable market conditions as a result of cumbersome governance processes, poor optics / community pressure, or inopportune timing. As DAOs become more proactive and sophisticated at treasury management, the next bull market may prompt them to more strongly consider converting part of their treasuries into stables–enabling them to diversify their risk exposure and extend their runways. 

Location Matters

Between US and non-US respondents, there is a stark split in attitudes toward tokenized UST products. Respondents in Asia in particular are eager to access UST yields on-chain, largely because they might not have easy access otherwise.

Battle-Tested Smart Contracts Matter

Generally, large on-chain players do not want to deploy large sums into untested code bases, and certainly not into unaudited code bases. However, most are rather comfortable putting excess cash into battle-tested DeFi codebases like Aave, which have processed billions of dollars worth of TVL.

Ease of KYC’ing Matters

Generally, institutional personas who are active on-chain do not mind KYC processes, but nearly all are strongly against excessively cumbersome onboarding processes. And for the more crypto-natives like DAOs or some protocol treasuries, KYC processes can become exceedingly difficult, even if there is initial openness to them. This point of friction has generally caused respondents to shy away from KYC’d dApps / permissioned DeFi.

T-Bills vs. Everything Else: Product Matters 

For the respondents interested in accessing traditional, or off-chain asset (OCA) yields on-chain, there is no real motivation to touch anything beyond short-term UST yields at this point. People like the liquidity from yield-bearing, short-duration instruments like money market funds. This asset is easier to understand, while credit, duration, and market risks may not need to be considered.

Themes by Persona

Protocol & DAO Treasuries

Most are still establishing robust treasury management processes and generally skew very conservative. Funds are kept mostly on-chain in multisigs, rarely generating yield. Those that think about deploying capital focus mostly on allocating liquidity to support their business or ecosystem objectives. Most are just starting to wake up to tokenized OCAs. DAOs might be suited to diversify into on-chain yield opportunities, as both they and the market evolve. However, governance and onboarding hurdles must be addressed. 

Liquid Token Funds

Liquid token funds tend to be more crypto-native and very comfortable with battle-tested dApps / code bases. They are generally indifferent to KYC’ing. While they would consider allocating cash to tokenized UST yields–especially if they can utilize those allocations in the DeFi ecosystem–most are happy playing wait-and-see for now.

Quant Funds

Quant funds tend to be more natural buyers of products like tokenized T-bills. Most keep a portion of funds in stables when not actively in crypto positions, which is fairly frequent nowadays given the sideways price action in recent months. Quant funds would be very receptive to a traditional yield-bearing option while sitting in stables, but at the moment generally do not have a strong enough option they are particularly comfortable with.

DeFi Funds

DeFi funds are very focused on yield-generating strategies given their mandate, so USTs may not clear their yield hurdles but are intriguing. Overall, they’re more interested in the interoperability/composability of future product iterations and middleware-enabling looping strategies (i.e., levered returns on-chain). Generally DeFi protocols want to see more traction before building tokenized T-Bills into existing products, though we are starting to see more protocols wanting to accommodate these new on-chain instruments.

Digital Asset Managers 

This persona typically has strong TradFi roots, favors KYC, and tends to prefer fiat over stablecoins. They may be open to DeFi activity but generally tend to use CeFi desks / digital asset prime brokerages for on-ramping crypto, executing trades, custody, and so forth. CeFi desks typically provide rewards for holding stables, but an adequate tokenized T-Bill offering could help transition some of these funds on-chain.

VC Funds

While the lines between VC and liquid token funds are often blurred in crypto, VCs generally don’t optimize for shorter-term yield generation for many reasons, including tax-related reasons, different mandate/strategy, and a lack of excess cash while calling capital for investments.

  • Crypto VCs who do hold tokens are more likely to use tokenized treasuries as a cash management tool. They typically view on-chain yield generation from a strategic lens, e.g., not to make money but to help secure a network or bootstrap liquidity to help portfolio companies get products off the ground. Quite often they will hold cash in majors in order to keep market beta closer to 1 vs. BTC or other L1 tokens, which are often looked at pseudo benchmarks.
  • Crypto VCs who do not hold tokens are not going to be the first users, but this could be something that makes them consider tokens more seriously.
Family Offices

Family offices are generally far from deploying capital on-chain. There are a few unique single family offices (SFOs) that may be more progressive, have a yield bucket, and/or have a venture bucket that looks at crypto. This small subset is often based in Asia or on the US West Coast and rooted in tech-generated wealth. While these SFOs may find tokenized USTs interesting, nearly all are still a long way away from actively considering on-chain investment opportunities.

Disclaimer: The content contained in this post does not constitute financial or investment advice whatsoever and is for informational purposes only. All examples mentioned here that would otherwise lead anyone to speculate on future deals are completely hypothetical to simply make a point. All observations are general and thematic in nature and do not reflect the opinion of any one specific person or entity.

SHARE //
NEXT UP//

Avalanche Watch: May 2024

Gaming

LiveDuel Brings Web3 Sports Betting to Avalanche

Gaming

Elixir Games Announces Acquisition of RoboKiden and Strategic Partnership with Ava Labs

NFT

Artist Spotlight: Ed Balloon Blending Web2 and Web3 at Avalanche Park

Gaming

Gamestarter introduces ‘GameChain’ powered by Avalanche

Institutions

Wine Capital Fund Leverages Oasis Pro and Avalanche to Make Fine Wine an Investable Asset Class

Community

Introducing Core’s Airdrop Tool: A Free Way to Distribute Tokens and Reward Your Community on Avalanche

NFT

Salvor Secures Avalanche Rush with a $1M Incentive Grant to Build Out Avalanche’s Prime NFT Lending Platform

Gaming

Avalanche & Funtico: Revolutionizing Gaming on the Blockchain

Avalanche Watch: April 2024

DEFI

The Avalanche Foundation Announces Memecoin Rush

Institutions

Homium Issues First Home Equity Loans on Avalanche

Enterprise

Feature.io Uses Avalanche-Powered API to Bring Web3 to Any Streaming Platform or Media File

Enterprise

stc Bahrain and Avalanche forge partnership to drive Web3 progress in the Middle East

Enterprise

Avalanche x Seedhe Maut: Revolutionizing the Fan Engagement Economy with Metasky

Enterprise

Really Launches Avalanche Subnet to Expand Reach of On-Chain Movies

Developers

Frosty: Bringing Strong Liveness Guarantees to the Snow Family of Consensus Protocols

Platform

BitNote Launches Encrypted Notes on Avalanche

Platform

Avalanche Integrates with Stripe for Crypto Onramping

Avalanche Watch: March 2024

Platform

The Avalanche Foundation Unveils the Icebreaker Program

Community

The Avalanche Foundation Launches Ambassador DAO to Usher in the Next Wave of Users

The Avalanche Foundation Announces a New Board

Community

The Avalanche Foundation Discloses Community Coin Holdings

Platform

Avalanche Foundation Launches Community Grants Program with Gitcoin

Institutions

Clearpool Expands to Avalanche with Exclusive Launch of Credit Vaults

Enterprise

Coachella to Gamify the Festival Experience and Distribute New Rewards Using Avalanche

Developers

Startup Incubator Codebase Names First Cohort

Institutions

Diamond Standard Leverages Oasis Pro and Avalanche to Make Diamonds an Investable Asset Class

Institutions

Tokenization 101: The Tokenized Collateral Ecosystem

Enterprise

Avalanche Powers Web3-Enabled Voucher Program on Alipay+ D-store

Institutions

Avalanche and Chainlink Leveraged in Tokenized Asset Settlement Project

Developers

The Graph Expands Data Tools for Avalanche Developers

Community

Avalanche Foundation: Eligibility Criteria Framework for Community Coins

Platform

Avalanche Watch: February 2024

NFT

Best Dish Ever Launches NFTs on Avalanche, Pioneering the Future of Culinary Exploration

Gaming

Legendary MMORPG MapleStory Comes to Avalanche

Platform

Teleporter Makes Avalanche a Fully Interoperable L0 Network

Enterprise

Loyalty+ to Receive Multiverse Incentives to Spur AI-Enhanced Loyalty Programs

DEFI

SteakHut V2 Introduces New Liquidity Features on Avalanche

Enterprise

Avalanche to Power SI Tickets’ NFT Platform, Box Office

NFT

Looty and Inspect Launch Loyalty Platform with Loot Crate Rewards, Boosting Avalanche NFT Season

Platform

Durango: Avalanche Warp Messaging Comes to the EVM

Community

Avalanche DeFi Saga with Rep3

Institutions

Citi Tests Benefits of Private Markets Tokenization With Avalanche Evergreen Subnet ‘Spruce’

Enterprise

Avalanche Named Exclusive Sponsor of Collider on the Lot Startup Accelerator

Platform

Cortina: X-Chain Linearization

Avalanche Watch: January 2024

Gaming

Owned Blends SocialFi and Gaming on Avalanche with Battle Tech

Enterprise

The Empire State Building Launches NFT Loyalty Program on Avalanche Using Uptop

Institutions

Intain Launches Avalanche Subnet to Usher in New Era for Multi-Trillion Dollar Securitized Finance Market

Institutions

How Avalanche Uses Account Abstraction to Improve the Web3 Experience for Institutions

Institutions

Institutional Products, Pilots Signal Growing Interest in Tokenization

Enterprise

Edgevana to Provide Infrastructure to Avalanche Network, Expanding Validator Decentralization

Institutions

South Korean Digital Asset Custodian BDACS to Support Avalanche

DEFI

Struct Finance Joins Avalanche Rush with an Incentive Program of up to $1M

DEFI

Fonbnk Builds Avalanche On-Ramp for Cross-Border Payments in Emerging Markets

Platform

Avalanche Wallet Phase-Out Guide

Platform

Avalanche Watch: December Edition

Institutions

What is Asset Tokenization: Why & Why Now?

DEFI

Sub-Saharan Africa: A Land Of DeFi Opportunity

NFT

NFT-TiX Migrates to Avalanche and Announces Global Festival Partnerships

Enterprise

AR Platform Really to Upgrade Entertainment Using Avalanche

Gaming

Tiltyard Gives Web3 Games Tournaments and Fantasy Sports Features

DEFI

Hubble Exchange Launches Order Book DEX Built on a Custom Avalanche Subnet

Platform

Avalanche Watch: November Edition

Developers

NodeKit Raises a $1.2M Pre-Seed Round to Build a Shared Sequencer L1 with HyperSDK

Gaming

Mirai Labs Blends SocialFi and Web3 Gaming, Migrates to an Avalanche Subnet

Institutions

Republic Selects Avalanche for its Profit-Sharing Note, Gains Vista Support

Platform

Avalanche Watch: October Edition

Institutions

Avalanche Supports Citi FX Solution Under Project Guardian

Institutions

Onyx by J.P. Morgan Leverages Avalanche To Explore a New Paradigm for Portfolio Management

Platform

Avalanche Foundation Mission Statement and Reminder About System Unlocks

Developers

Web2 and Web3 Leaders Launch Codebase by Avalanche, an Accelerator Supporting Early-Stage Avalanche Projects

DEFI

Avalanche Expands Forex Market in Africa With Canza Finance’s Baki Launch

Platform

Avalanche Powers Metaverse Experience at Hong Kong FinTech Week

Gaming

5 Great Web3 Games Coming Soon

Institutions

Beneath the Surface: The Infrastructure Driving Tokenization Forward

Developers

Avalanche is Advancing Off-Chain Computation Services for Developers

Enterprise

Neal Stephenson’s LAMINA1 to Reimagine the Open Metaverse with New Layer 1 Built on Avalanche

Ava Labs Accelerates Push in India with Key Senior Hires

Platform

CCRI Finds Avalanche Emits 12x Less CO2 Than Ethereum, 300,000x Less CO2 Than Bitcoin

DEFI

The Tangible Benefits of Bringing Non-USD Stablecoins and FX On-Chain

Institutions

On-Chain Cash Management: Thematic Takeaways From Partner Discussions

Platform

7 Avalanche Use Cases

NFT

Builder Spotlight: Zeroone is Rethinking How NFT Enjoyers Create and Collect

Institutions

Navigating Tokenized Asset Investments for Institutional Buyers

NFT

Blockticity Mints $275M in Hemp and Other Product Certifications on Avalanche, Disrupting a $4.5T Industry

Developers

Introducing Firewood: A Next-Generation Database Built for High-Throughput Blockchains

Community

Builder Spotlight: Steven Gates Wants to Bring Subnets to the World

Community

Avalanche Foundation Launches Ted Yin Grant Program to Expand Open Source Technology Development

Enterprise

Korean Entertainment Giant Powers Ticketing Platform with Avalanche

Developers

Developer Spotlight: NodeKit’s Cofounder on Why Avalanche is “Unrivaled”

Platform

New Avalanche C-Chain Explorer Launches

Developers

Time to Finality (TTF): The Ultimate Metric for Blockchain Speed

Platform

Avalanche Watch: August Edition

Developers

Movement Labs Raises Pre-Seed Round, Launches Movement SDK To Reignite Web3’s Interoperable Future

Gaming

Builder Spotlight: Kam Punia’s Quest to Level Up Web3 RPGs

DEFI

Multiswap Launches with Plan to Unlock Swaps of 300+ Assets in a Single Transaction on Avalanche

Gaming

Korean Game Publisher Neowiz and Ava Labs Form Partnership