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Ramp’s early adoption of stablecoins increased their Corporate Treasury returns

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USDC

Wed, Jan 19, 2022

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Ramp’s early adoption of stablecoins increased their Corporate Treasury returns Ramp’s early adoption of stablecoins increased their Corporate Treasury returns Team CircleJanuary 19, 2022 Alex Song is the Head of Finance and Capital Markets at Ramp, a corporate credit card issuer and expense management company based in New York.

As a result, I needed to figure out a way to allocate and invest all of this excess capital.

Like every Corporate Treasurer or CFO, I’m tasked with efficiently managing investments by maximizing returns while also ensuring it's available when the company needs it.

The traditional options available to a Corporate Treasurer Corporate Treasurers focus on two main things in determining asset allocation: Preservation of Capital We need to invest in safe things, hence the focus on Government Treasuries and investment grade corporate bonds, which are generally defined as AAA to BBB rated securities.

Where this exercise shakes out for most CFOs is a strong focus on matching asset and liability duration, as well as deep markets for liquidity purposes As all market participants know, the current yield environment is challenged.

One consequence of that is traditional bonds and fixed income securities are not producing compelling investment returns.

For context, investment grade (IG) bonds currently yield on average 3-3.5%, but the average bond in the IG universe is also a 12 year bond!

So that means we need to take 12 year duration risk just to get to a 3-3.5% yield.

Therefore, for most start ups, SMBs, and even mid-market companies, Corporate Treasurers largely focus on the <1-2 year horizon for their fixed income investments.

As an example, Ramp’s main fixed income and ETF investments mainly consist of less than 1-2 year IG paper, and they yield roughly 25-75bps.

Portfolio Average Rating A/A2 Maturity 1.02 years Average Life 0.96 years Effective Duration 0.95 years2.28% Coupon 2.28% Market Price 101.80 Yield to Worst 0.41% You don’t have to be a former 10+ year bond trader on Wall Street to know that while the portfolio above looks safe, the yields are not very compelling.

The new option for Corporate Treasurers: Stablecoins Once the team started diligencing stablecoins in earnest, we learned about some very cool and compelling characteristics of this market.

As a holder of USDC, one can generate a reasonably high yield as a market participant.

As a Corporate Treasury who is holding a reasonable amount of excess USD, there are a number of blockchain-enabled companies that can convert that USD into USDC and facilitate the transaction I described above (Circle, Genesis and Anchorage, to name a few).

Circle, as the sole minter of USDC, can provide seamless, scalable and near instant settlement in and out of the dollar digital currency – a powerful foundation for generating yield on that USDC.

We have spent the last few months working specifically with the Circle team, and as of several months ago, have deployed a significant amount of our Corporate Treasury into the Circle Yield product.

The Solution In an ideal state, the user experience for Circle Yield should feel like a Certificate of Deposit (a CD that you can get at any bank): you lock up your USD for a specific term, with the expectation of a certain annualized yield.

Circle Yield investments are fully secured and overcollateralized with bitcoin collateral.

They also generate higher yield compared to traditional bank rates and many fixed income markets.

In the table below, you can see an illustrative Circle Yield fixed-term structure from late October 2021.** As you can see, for the short dated nature of the instrument, the return profile is significantly higher than what you can achieve with traditional fixed income securities.

**For more information around returns and Circle Yield, please click here.

While the majority of our Corporate Treasury remains invested in conservative investments (like the ones we summarized in the first half of this Briefing), we are glad to be one of the first non-crypto companies in America to deploy a meaningful allocation of our Corporate Treasury into USDC through Circle Yield.

the information and opinions provided herein should not be taken as specific advice on the merits of any investment decision.

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