Treasury Management Beyond The Bull Market With Spencer Hallarn - Global Head of Markets

Key Takeaways

• The industry remains heavily concentrated. Nearly 70% of DAO treasury assets are held in native tokens, leaving many projects exposed to a single source of risk during downturns.
• Crypto treasuries are structurally procyclical. Because most projects hold the majority of their reserves in their native token, their treasury value, protocol revenue, and overall market activity often decline at the same time.
• Projects consistently hedge too late. Our OTC desk sees demand for downside protection surge after prices fall, when premiums have already risen and any floor a project sets sits far below where the token started.
• Protection does not require selling. A collar pays for downside protection by giving up some upside rather than by spending stablecoins, which lets a project keep its position and its operating reserve at the same time.
• Treasury structure matters more than market timing. Separating operating reserves from long-term holdings and putting risk-management policies in place before markets deteriorate is what extends runway.
• GSR is an active participant in crypto treasury and risk-management markets. Our activities include OTC execution, block trading, and structured derivatives, including collars and other hedging structures, for foundations, protocols, and other market participants.

At GSR, we've seen the same story play out across every market cycle.

Crypto treasuries are procyclical by construction, as most DAO treasuries remain heavily concentrated in their native token. In aggregate, over 70% of treasury assets are held in the project's own token, with relatively little allocated to stable assets or diversified reserves.

We see the consequences of this allocation every downturn.

When the cycle turns and the token’s price drops, the treasury that was meant to fund the roadmap suddenly becomes the project's biggest source of risk.

Given the current climate, that is a conversation we are having with more clients than ever. We are suddenly asked not only when the market will recover, but whether a project will have enough runway to keep building until it does.

Activity Falls When Prices Fall

The second challenge is structural.

As treasury value falls, protocol activity weakens, fee generation slows, and liquidity deteriorates at the same time. The treasury becomes least valuable at the exact moment it is needed most.

We see this play out across cycles. Teams believe they have a treasury that will support them through difficult markets, but both sides of their balance sheet are exposed to the same underlying risk.

Costs do not fall with the token. Payroll, audits, infrastructure, and grants are denominated in dollars, so a project funding them from token sales has to sell more tokens to raise the same amount. Selling more supply into a weaker market pushes the price lower again, which raises the number of tokens needed next quarter. The treasury drains faster than the drawdown alone would suggest.

That is why we start with a simple question with every client: Could your treasury fund the roadmap if markets declined for another 12 months?

Protection Is Cheapest Before You Need It

This is a clear pattern we’ve observed on our OTC desk.

During bull markets, very few projects want to hedge, as paying option premium feels like sacrificing upside. Then markets sell off, and the conversation changes almost overnight. Suddenly everyone wants protection.

Unfortunately, that is also when protection is most expensive.

As shown above, implied volatility typically rises after markets fall, increasing the cost of downside protection precisely when demand is highest. It is the financial equivalent of buying insurance while the storm is already overhead.

We have seen this story time and time again. Every client wishes they had hedged when volatility was low. None of them can go back and do it.

Hedging should be viewed as an ongoing treasury policy, not a last-minute call made out of fear. You don’t need to predict where prices will go next, only ensure that known liabilities can be funded regardless of what markets do. 

There is also more than one way to pay for it. As crypto’s volatility is generally expensive compared to traditional assets, the structure we execute most often is a collar. Projects sell a call above the current price and use the premium received to buy a put below it. Ultimately, this gives the project’s token a defined range. Value is protected below the put strike, and in exchange the project gives up gains above the call strike. Structured properly, the two legs offset each other and the trade can be done costlessly. This makes collars the hedging tool of choice for many projects, as buying puts outright spends the same reserve the hedge exists to protect.

A collar is not a sale, as projects keep exposure inside a range they choose. It gives up the gain above the call strike in exchange for a known floor. Collars turn a volatile asset into a range your finance team can plan around when dollar costs are budgeted for a year in advance.

None of this removes the case for acting early. A collar is a tool that protects from wherever the token trades on the day it is put on. A project that sets a floor with its token at $10 protects most of its value. A project that waits until the token is at $4 sets its floor near $4. The structure is available in both cases, but it cannot recover what has already been lost. 

Treasury Structure Determines Runway

The projects that have successfully navigated multiple cycles all have separate parts of their treasuries, each with a defined purpose.

Operating reserves are held in cash or stable assets to fund payroll and operating expenses. Longer-term crypto holdings remain invested but are managed with appropriate hedging where necessary. Strategic positions remain intact without putting the organization's survival at risk.

The chart above illustrates the difference. A treasury held entirely in a native token can lose years of operating runway during a major drawdown. Separating reserves and protecting longer-term holdings preserves substantially more runway, even before assuming any market recovery.

Preserve first. Grow second.

How GSR Helps

This is where we spend our time.

Every treasury is different. Liquidity, governance structures, vesting schedules, operating budgets, jurisdictional constraints, and token concentration all influence how a treasury can be structured and the risks and trade-offs involved.

GSR works with foundations, DAOs, and protocols across OTC execution, collars and other customized derivatives, structured hedging programs, and block trading. These transactions can be used to manage treasury concentration, market exposure, and liquidity depending on the circumstances of the relevant treasury.

GSR's activity in these markets includes both execution and the structuring of treasury transactions across different market conditions.

Our industry remains cyclical. The projects that emerge strongest will be the ones that never had to stop building, because their treasuries were built to survive the downturns.

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