Well-managed cash flow can help maximize returns and ensure a company’s long-term financial stability.
But when you talk to your banks, you’re often disappointed by the returns they offer. Particularly when it comes to short-term cash investments. Currently, French banks offer a 3%/year return on a term account with guaranteed funds. Whereas these same banks invest your funds at 4%/year minimum, the ECB’s risk-free overnight rate.
With euro and dollar stablecoins, these digital assets that replicate the value of their underlying currency, you can really benefit from the current rate environment while maintaining a prudent approach: guaranteed by other assets, yield >6.50%/year, interest paid continuously, withdrawals at any time… they have some serious arguments.
5 tips for defining a cash flow strategy
Before describing the recommended stablecoins further down in this article, here are a few reminders about the approach to optimizing your company’s cash flow:
1. Analyze your liquidity needs
Before deciding where to invest your cash, it’s important to understand your company’s liquidity needs. Assess your projected cash flows, as well as your short- and long-term expenses. This analysis will help you determine how much of your cash you can afford to place in less liquid investments.
2. Evaluate investment options
Compare different investment options in terms of their potential return, liquidity and level of risk. For example, certificates of deposit generally offer higher returns than savings accounts, but they also involve locking in funds for a set period. Money market funds offer high liquidity, but their returns may be lower than those of other investments.
3. Consider long-term objectives
If your company has excess cash and no immediate need for liquidity, consider longer-term investments that offer potentially higher returns. This could include shares in solid companies with a history of stable dividends, or diversified index funds.
4. Monitor and reassess regularly
Cash management is an ongoing process. Be sure to regularly monitor your investments and re-evaluate your strategy based on market conditions and your company’s changing needs. Be prepared to adjust your asset allocation accordingly.
5. The golden rule: diversify
As always, don’t put all your eggs in one basket. Opt for diversification to reduce your overall portfolio risk. You can divide your liquid assets between short-term investments such as certificates of deposit or money market funds, and more or less liquid investments such as euro and dollar stablecoins, high-quality corporate bonds or index funds.
Asset-backed stablecoins: a great investment opportunity
Let’s get back to our stablecoins as a solution for boosting your cash flow.
As a reminder, a stablecoin is a very special kind of cryptocurrency – we prefer the term digital asset – that replicates the value of a currency or commodity. There are stablecoins for euros, dollars, gold, silver… A euro stablecoin, for example, is always worth almost €1.
Euro and dollar stablecoins can be divided into 2 categories:
- semi-algorithmic stablecoins: they are backed by at least 100% of their value in other assets, which means that their existence is very solid. For example, the USDC is 100% backed by real dollars and US Treasury bills. There are 30.5 billion USDC in circulation today, so there are 30.5 billion “real” dollars and US Treasury bills invested by the Circle company that issues USDC.
- algorithmic stablecoins: these are simple computer codes that have been created with the rule of replicating their underlying. This type of stablecoin is very risky, as there are no assets to back it, and it can be attacked. In fact, it’s an endangered species.
To invest your company’s cash, make sure you only use stablecoins backed by other assets. Here are a few examples: agEUR, USDC, EURS, EURC, DOLA, DAI, PYUSD (Paypal’s stablecoin), crvUSD…
Warning: while holding semi-algorithmic stablecoins is very low-risk, making them grow by investing them on yield platforms introduces a dose of risk – small but not zero – of capital loss. You must therefore select the platforms on which to invest your stablecoins with care.
Example of a strategy
Whether for short-term or long-term financial investment, here’s a simple example of how to balance availability and performance when investing your company’s surplus cash:
- 30% cash in bank account, for day-to-day transactions,
- 40% on euro and dollar stablecoins, withdrawals at any time and yield 7.20%/year,
- 30% on a 12-month term account, interest rate 4%/year.
With such a strategy, you’ll achieve a rate of return on your company’s cash flow of 4.08%/year. With 30% immediate cash in your bank account.
If business needs require more than the 30% immediate liquidity, you can withdraw part of the funds invested in stablecoins at any time. And if you need to access the remaining 30% placed on the term account, you can also release it at any time, even if you lose part of its enhanced yield.
How do you go about investing your cash in stablecoins?
This question was addressed in another article on this blog, entitled“How to profit from stablecoin returns“, which you can find by clicking on this link.
The short answer is: you have several options, the simplest of which is the eco Account. A simple transfer in euros to credit your account, and your company becomes the owner of a portfolio of several stablecoins invested in yield protocols. You receive a daily return of 7.20%/year, and you can withdraw your funds at any time within 48 hours, free of charge.
Investing your company’s cash in the best possible way requires careful planning, analysis of liquidity needs and appropriate diversification. By following this advice and remaining alert to opportunities and risks, you can earn money on your available cash while preserving your company’s financial stability.
