This blog is completely unsolicited. I’m writing it because I’m in awe of the work that Exponent is doing, and I think more people should be aware of it.

Full disclosure: Exponent is using Credmark’s platform to develop their risk models. I’m obviously proud of that, but it’s not why I’m writing. I’m writing because I’ve dealt with treasury management. It’s painful. Everyone in crypto has to deal with it. Exponent is making it a whole lot easier.

Treasury Management Pain

Back in January 2022 we launched our internal treasury management effort. We understood treasury management in TradFi and had no problem mapping core concepts over to crypto:

• Operational liquidity ✅
• Diversification ✅
• Risk management ✅

Our guiding principles and a concrete plan were quickly developed. We set aside an hour to execute the plan. It took 44 😱. (Neither of these documents has been published before, but now seems like a good time.)

Publicly, I wrote about the difficulties of formulating a treasury management plan in crypto here. Since I wrote the post on Halloween, it’s rather whimsical, but the message is dead serious: crypto treasury management is hard.

Later I wrote about the execution process here. It’s not for the faint of heart.

Retrospective Lessons

We originally intended to run an allocation cycle every month. But it took us almost a month to execute the first one. So we scaled back our ambitions and decided to do it once a quarter. We failed to do that too.

Why?

We didn’t have a dedicated treasury management team. The people who worked on this (there were three of us) were busy with critical path projects. Treasury management kept getting pushed off. This ended up costing us money as we failed to prevent a liquidation. Also, market conditions changed, and we didn’t react.

In retrospect it would have been better to have let our treasury (mostly USDC) sit idle. This is from a financial perspective. On the other hand, we learned so much from this work that we now consider it a pivotal chapter in Credmark’s evolution.

Our expertise is data and model development. We aren’t tool builders. In the absence of a dedicated team, effective treasury management requires built-for purpose tools.

That’s where Exponent comes in.

Exponent

Exponent are developing a treasury management platform: https://app.exponent.cx/.

The first thing you’ll notice is that they care about UX. A little guide for newbies is your entry point. Unheard of in Web3.

The second thing you’ll notice is that they’ve settled on a familiar metaphor for treasury allocation: vaults.

Vaults can be managed by individuals or multisigs, i.e., Gnosis vault owners. Exponent vaults inherit the characteristics and requirements of the “owning” Gnosis vault. This is kind of brilliant. They’ve managed to combine a familiar organizational structure with a trusted governance structure.

As you dig into the product – and I have to admit to having insider insight – the cleverness of their scheme becomes even more apparent. Each vault can conform to a unique strategy. Exponent have already developed and released several stablecoin strategies.

The simplest takes the input token (e.g.. USDC) and applies a diversification strategy, automatically creating a pool of USDC, USDT, DAI, etc. The assets in this pool are then monitored using risk models running on the Credmark platform. In other words, all a user needs to do is allocate tokens to that pool, and the rest happens in the background. It’s magic.

A more sophisticated strategy distributes tokens to various yield-generating protocols, automatically rebalancing as market conditions change. Financial models are used to optimize yield without unnecessary risk exposure.

What’s Next?

Multisigs are great, but they introduce execution coordination problems. Anyone who has tried to execute a swap from a Gnosis safe knows how painful it can be. Exponent are addressing this problem in their context in an ingenious way.

I’m not privy to Exponent’s long-term plans, but given what I’ve seen so far, I can promise that they are going to make the community of treasury managers very, very happy.

Exciting times.

About Credmark

Credmark runs a financial modeling platform powered by reliable on-chain data. Credmark also curates and manages DeFi data making it available via API.