CZ: Some Simple Tips When Using Crypto in Contracts (not Smart Contract)

Changpeng Zhao, the CEO of Binance, recently provided guidance to users on how to manage crypto payments in contracts effectively.He suggested that the simplest model is for the contractual parties to agree on an explicit quantity of a defined digital currency, mentioning that this strategy helps avoid issues related to exchange rate conversion. However, he cautioned that this method's pitfall lies in the potential for the asset's price to vary in fiat terms, which can become problematic in agreements involving staggered payments over extended periods.CZ further discussed a scenario where a specific fiat amount needs to be paid in cryptocurrency. This method works smoothly if a stablecoin is involved, given the close pegging to fiat currencies. But it's wise to include a depegging limit and alternative choices, considering that even stablecoins can occasionally depeg.In situations where a contract specifies a USD equivalent to be paid in a cryptocurrency such as Bitcoin, it becomes essential to decide upon a method for calculating the conversion rate. Detailed methods like using the daily open price on Binance.com or a five-day average on the payment day could be included in the contract for objectivity.CZ also emphasized that contracts involving possibilities of early termination or deposits to be returned in the future should explicitly mention the return currency and its amount. He highlighted the common contractual pitfalls where parties argue over whether they should get the original Bitcoin amount or the accumulated USD, particularly in situations where one has appreciated more over time.Finally, he advised that contracts involving large amounts should consider aspects like treasury management or conversion rate management. Binance's Convert tool can facilitate such large-scale cryptocurrency conversions. These insights offer valuable help for those navigating the world of crypto contracts.