How can crypto companies avoid being “attacked by Wall Street”? Start with fund management

原文标题：Dear crypto: If you want to beat Wall Street, focus on treasury management

Original author: Matthew Liu, Partner and CSO of SynFutures

Compiled by: Qianwen, ChainCatcher

Financial Street giants are entering the market one after another, and crypto natives are facing a "life or death" moment.

More and more traditional financial institutions are getting involved in the cryptocurrency market, bringing big changes to the cryptocurrency market. Take PayPal as an example. It launched its own stablecoin in August 2023, becoming the first large financial company in the United States to launch a stablecoin, which is an important milestone.

Another notable event was the SEC’s acceptance of BlackRock’s application to launch a Bitcoin ETF in July 2023. While the application has not yet been fully approved, the move signals the growing recognition of cryptocurrencies as a legitimate asset class (even if it is temporary).

This emerging wave fully demonstrates that the mainstream financial world is becoming more and more accepting of cryptocurrencies. If these relatively new crypto-native institutions want to maintain their momentum, they must be prepared to compete with the traditional financial industry. At this time, cryptocurrency companies should learn from Wall Street's practices and manage company funds well.

It is also important to note that regulators are already keeping a close eye on cryptocurrencies. Problems with fund management at exchanges are like waving a red flag in front of the bulls (regulators), leading to greater scrutiny. Cryptocurrency companies face a changing financial environment and must not only consider their own interests and ensure sound fund management practices, but must also take into account the heightened vigilance from regulators.

How to learn from history?

The development of the cryptocurrency industry over the past decade has taught us an important lesson - early cryptocurrency startups suffered painful lessons due to financial, management and legal shortcomings.

These crypto institutions have traversed a difficult path through a fog of financial missteps, regulatory challenges, and scandals, building their resilience and adaptability.

In May 2022, Terra and LUNA collapsed in what many believe marked the first major bank run in the cryptocurrency space. The disaster devastated the entire industry and exposed huge flaws in managing counterparty risk. Another example is the cryptocurrency exchange FTX, which went bankrupt in November 2022.

The collapse of FTX is a stark example of poor financial management. This problem was exacerbated by the risky financial behavior of many cryptocurrency startup customers. Instead of spreading all their funds across exchanges or keeping them in self-custody accounts, many customers entrusted their assets entirely to FTX, exacerbating the impact of the crash. This highlights the need for improved risk management and diversification strategies in the crypto ecosystem.

Despite recent progress in the cryptocurrency industry regarding regulatory compliance, security measures, and investor protection, these incidents and others around the world highlight that money management practices still need significant improvement.

What can Wall Street teach us?

Effective fund management is a key factor in determining the success of a crypto institution.

At its core, treasury management is about managing cash flow, assessing and mitigating risk, strategically investing in assets, and ensuring processes are in compliance with regulatory reporting protocols. These processes may sound dull, but given the unique challenges facing cryptocurrency companies, including extreme market volatility, regulatory uncertainty, and tricky liquidity management, as well as the growing existential threat to the crypto space from Wall Street financial firms, all of which means that strategies should be developed to keep the company financially sound.

The ongoing uncertainty in the cryptocurrency space highlights the need for sound money management practices, including diversification, risk assessment, and hedging strategies. Asset diversification and rigorous risk assessment can mitigate the volatility inherent in the cryptocurrency space, while effective hedging can provide additional protection. No innovation can replace these core financial principles.

The same principles in traditional financial treasury management practices can be directly applied to the cryptocurrency space. A critical step for cryptocurrency institutions is to adopt a risk-based approach to treasury management, systematically evaluating potential risks and rewards to make informed decisions that align with their goals.

Another consideration is working with third-party providers. This is critical for treasury services, including cash management and risk reduction. Leveraging the expertise and resources of individuals or organizations can also bring advantages to the company. We also need to recognize the importance of collaboration between financial professionals and technical experts. Collaboration can improve the efficiency of treasury management, and the combination of multiple disciplines can help the company achieve overall success.

If crypto-native companies don’t take a more proactive approach to treasury management, the evolving cryptocurrency market won’t survive. By combining traditional financial wisdom with the unique dynamics of cryptocurrency, businesses can build a solid financial framework that helps them navigate uncertainty and seize opportunity.

Failure to do so could leave cryptocurrency companies vulnerable to repeating past mistakes, which could lead to financial instability, loss of user trust, and ultimately, company closure.