Whether referred to as Bitcoins, cryptocurrencies or digital assets, the ACT has been monitoring developments in this area over the last few years ⁽¹⁾. The Award in International Cash Management qualification is undergoing an update that includes significant work on payments, including a section on digital assets and CBDCs.

Attending meetings and conferences about digital assets can ignite a sense of anticipation, signalling that their time has arrived, and suggesting a near future where widespread adoption is likely.  However, it’s uncertain how accurately these meetings reflect the sentiment among ACT members. The purpose of this survey was to gain insights into the current level of engagement with digital assets and assess various aspects related to them. It was also to assemble a group of individuals interested in exploring real use cases with industry experts. 

The insights are grouped into four key observations.

1. More education is needed

Despite a wide variety of ACT resources available there remains confusion over what digital assets are, how they can be used and how the regulatory framework is changing. This could stem from a perceived lack of activity in the real world and the frequent use of confusing language. This was recognised by the respondents which highlighted a lack of proper understanding as the third highest impediment to being adopted in an organisation (Q. 22).

Despite the attention around companies such as FTX and Binance, significant efforts are being made to examine the underlying financial infrastructure and the tokenisation of assets. While not all of these may necessitate the adoption of digital assets, it is clear that we are in a period of reassessing the global financial landscape, confronting the various challenges and seeking alternative solutions. 

There also seems to be a continuing concern over the stance of regulators with the lack of regulatory clarity being the second highest concern (Q. 20). Several years ago, it was not uncommon for regulators to express disapproval towards the utilisation of digital assets. However, regulators such as the UK’s FCA have now adopted a more considered view of digital assets and in some cases have clarified or extended the regulated perimeter. This development should reassure digital assets users that fully regulated options are available. Additionally, tax and accounting rules have matured, no longer posing insurmountable barriers, despite being identified as an impediment to adoption in the survey (8^th highest issue in Q. 22). 

All stakeholders in the digital asset domain must increase efforts to ensure potential market participants understand the nuances of digital assets. A sustained and targeted programme of activity would help treasurers become more comfortable with the real risks and opportunities. Treasurers should take advantage of any opportunities to learn from credible counterparties and sources of information, particularly because there are lessons available for traditional businesses. For example, digital assets settle T+0 on a 24-7 basis. Regardless of anyone’s opinion of digital assets, it is a reasonable assumption that traditional assets and payments are gradually heading to the same accelerated settlement cycles and continual availability. 

2. Benefits are becoming clearer

It is clear from the survey that a number of treasurers have carefully considered the risks and benefits of digital assets and how they can help them manage their business risks better. Respondents from large multinational businesses, in particular, identified how these instruments could solve some of the problems associated with operating in emerging markets, especially around trapped cash and cross-border payment costs (see Q. 13 on the potential use cases for digital assets). The ACT is aware of several projects already underway. Although cross-border payments across mature markets may function well, the same cannot be said for payments between emerging markets, where poor infrastructure and local regulations create significant challenges and impose both explicit and implicit costs on treasurers. 

Some respondents highlighted the other benefits of digital assets. When asked about the benefits of traceability and audit trails (Q. 18), over one-third felt that it would improve the detection of fraud and waste. With ever increasing risks of cyber-attacks and fraud, any measure that contributes to their reduction is undoubtedly beneficial. However, digital assets are not solely effective in addressing fraud and waste. With increasing scrutiny on supply chain participants and their impact on ESG credentials, data, including that associated with payments, can provide valuable resources to help monitor as many parts of the supply and value chain as is possible. This resonates with our survey which found that a combined 40% identified tangible benefits from using the traceability of digital assets to support their understanding of their supply chains (Q. 18). 

Identifying practical use cases is crucial, and the digital economy needs to apply more effort to work with companies in the real economy to create and deploy not just proofs of concept but frameworks and ‘play books’ that can allow treasurers to rapidly and safely scale up their capabilities in digital assets once they decide to adopt them. Companies wanting to explore such opportunities are encouraged to contact the ACT at technical@treasurers.org or contact Zodia Markets directly at contact@zodiamarkets.com. 

3. Challenges and Impediments

Despite the acknowledged benefits, what is holding back the broader adoption of digital assets? While we have noted the necessity for enhanced education, what does this mean in practice?

A key impediment identified in our survey was the volatility of the asset (most important factor in Q.20 – risks with using digital assets). It also featured in Q.22 – hurdles to adoption which recognised a loss of value as being the second most important reason not to use digital assets. Clearly these responses focus on the use of Bitcoin and other alt-coins but ignores the role of stablecoins. One of the largest issuers of stablecoins is Circle which has been granted licenses in a number of jurisdictions and a circulating supply of $35bn of its USDC. There are multiple use cases in use today with stablecoins:

1. Commodity firms, particularly in the oil and gas industry, are using stablecoins to buy and sell cargoes. Since many of these firms operate along challenging payment corridors, using stablecoins removes the need to open local bank accounts and offers faster (T+0), cheaper and more readily available means of payment that can be used 24-7. This has been used by a national oil company in Latin America. 
   Several firms are now exploring placing eBills of Lading on the same blockchains as the stablecoins used for payment. This allows for the removal of settlement risk between the two assets, as well as enabling escrow solutions, particularly where the time between the first and last payment is long, e.g. loading oil onto a ship, which can take days. 
2. Consumers in developed markets are paying their suppliers, especially those in emerging or frontier markets, in USD stablecoins. Many of the suppliers are unable to open local USD bank accounts, so USD stablecoins present a welcome alternative. Many suppliers are happy to receive USD stablecoins since, even should they have concerns about reserve management or stability, these stablecoins are still more stable and have more utility than many local currencies, which suffer from volatile FX rates, high inflation and poor banking. From the suppliers’ perspective, they can dispense entirely with FX risk management programmes, traders and all the costs associated with managing foreign currency payments. It is not difficult to buy USD stablecoins with a USD. This has been used by a vehicle manufacturer in North America. 
3. Non-USD stablecoins linked to eastern currencies such as AUD, HKD, JPY or SGD can offer treasurers time beyond the various currency cut-offs. For example, a treasurer can buy an AUD stablecoin in Australian hours and still settle that after the Australian payments systems and banks have closed for the day or, indeed, for the weekend. This can buy valuable time for operations teams. This also offers the opportunity of stablecoin-based FX, a market which should allow true 24-7 trading and settlement. With all currencies on the same chains, it also offers the opportunity for an expansion of Payment-versus-Payment settlement. 
4. Remittances to places like Mexico and the Philippines where workers are sending funds to loved ones overseas. This benefits from the 24-7 availability and T+0 settlement of stablecoins. This is used by companies such as MoneyGram today. 
5. Public Sector and Development organisations doing pay-outs to charitable causes using stables so they can track the distribution. For example, this has been used by the UNHCR in Ukraine. 

So, the facts don’t support the perception, underscoring the need for further education.

This holds true for regulatory concerns as well. While the market has moved away from regulators making sudden decisions on the acceptability of all digital assets, many are now making efforts to apply a proportionate risk-based approach. However, this does not seem to have permeated the treasury community, as regulatory risks are still considered the foremost impediment to adoption. 

Several other concerns persist, including boards being uncomfortable with digital assets (although it is worth considering how thoroughly the topic has been understood and discussed at this level), and the cautious approach of banks and auditors towards customers and clients intending to open digital asset accounts.

For the financial ecosystem to support the use of digital assets, it’s imperative for banks, audit firms, and regulators to adopt a risk-based approach to their utilisation. The risk is that the same thing happens to digital assets as happened to the correspondent banking network, which both the Bank for International Settlements and Financial Action Task Forcehave highlighted the unintended consequences caused by banks ‘de-risking’ their relationships. We also need to see more roundtable discussions to ensure that treasurers can separate current facts from the fiction.

4. What the future holds

The survey examined what the future may hold, and this is where it would be beneficial to directly discuss the results in more detail with the respondents.

Despite only a small number of respondents currently using digital assets, nearly a third expressed intentions to start using them within the next couple of years (Q.14 – when do you see your organisation using digital assets). In a five-year outlook, 66% anticipated their adoption of digital assets. If our sample was representative of the economy, it would suggest that most companies would be either buying from or selling to entities or individuals engaged in digital assets. It suggests that the market is growing, and perhaps, like the adoption of contactless payments, there will come a tipping point where the use of digital assets becomes less uncommon. However, our respondents also felt that digital assets would not replace certain existing instruments entirely (Q. 17 – how do you see the role of digital assets in the future), with 67% suggesting they would exist alongside existing instruments. (This is similar to research on CBDCs, which suggests that they would not replace existing forms of domestic payment such as cash or card, but rather offer another option for both payers and payees.)

There may be hurdles yet to overcome, but there is a growing conviction that digital assets will offer capabilities beyond what the existing financial markets and infrastructure can provide, both in terms of efficiency and cost-effectiveness. The key lies in observing real-world applications rather than relying solely on hypothetical scenarios.

Summary

The survey results convey several key takeaways. 

1. Interest in digital assets is increasing among companies, with large multinationals operating in certain emerging markets seeing tangible benefits from their utilisation. 
2. Much work lies ahead in educating the market about distinguishing fact from fiction. Nevertheless, as the market matures, with all stakeholders of the financial ecosystem engaging positively – from governments and regulators to financial infrastructure players, banks, technology providers, and end users, be it business or consumers. This collective effort is poised to drive financial innovation and foster increased adoption within the real economy.
3. Despite a degree of scepticism and limited current usage, there is a growing recognition that digital assets will soon become more commonplace than they are today. 
4. We need to see more real-world use cases and pilots involving businesses using digital assets to demonstrate their value.

Appendix:

1. It began in earnest with a webinar over four years ago and includes a series of webinars in 2021, followed by our Guide to Opening a Crypto Wallet in 2023.

About Zodia Markets

Zodia Markets is an institutional digital asset trading business whose mission is to make the unfamiliar, familiar. We are the trusted institutional trading partner for corporations and institutions who want to trade in digital assets, but who don’t want to compromise on the standards and principles associated with traditional finance. Zodia Markets is backed by SC Ventures, the innovation, and ventures unit of Standard Chartered, and OSL Group, Asia’s leading digital asset company. For more information visit www.zodiamarkets.com and contact us at: contact@zodiamarkets.com.

About the ACT

The Association of Corporate Treasurers is the professional body for treasurers and related roles in the UK and internationally. We were one of the first professional bodies in treasury, established in the 1970s, and we are the only treasury association to hold a Royal Charter. The ACT sets standards and qualifications in treasury, supports and develops treasurers throughout their careers, and ensures the voice of the real economy is heard by regulators, policymakers and employers.