The Digital Asset Treasuries State of the Union | DAS London 2025 | Day 1 | Investor
Summary
Investment Strategies: The panel discussed various strategies for Digital Asset Treasuries (DATs), including the use of Pipes, Converts, and Preferreds to manage and grow investments in the crypto space.
Market Dynamics: A significant portion of DATs are trading at a discount to MNAV, indicating an oversupply and lack of demand, which is leading to potential consolidation in the industry.
Trading Volume Importance: Trading volume is crucial for the health of a DAT, as it affects the ability to issue primary shares and raise capital, with a few big winners emerging while many DATs struggle.
Consolidation Potential: The panelists anticipate consolidation in the DAT market, with potential for M&A activity, especially when DATs trade below 1x MNAV, offering opportunities for strategic acquisitions.
Transparency Challenges: There is a need for greater transparency in DAT structures and deals, as current disclosures can be complex and misunderstood, impacting investor confidence and market dynamics.
Future Outlook: The future of DATs involves exploring new capital-raising methods, including leveraging staking and DeFi, and focusing on generating yield and liquidity to attract institutional interest.
Key Takeaway: The panel emphasized the importance of identifying high-quality DATs that can durably outperform their underlying assets by effectively managing capital market strategies and increasing asset holdings per share.
Transcript
All right, everybody. Thanks for joining us and we are here for the digital asset treasury state of the union, otherwise known as the DATs state of the union. Very excited to have an esteemed panel. I'll uh start with you, Ben, and just introduce yourself and just love to hear about what's your relevancy towards the DAT world. Yeah. Uh Ben Foreman. Uh is my mic on? Yeah. Okay, great. Ben Foreman. I'm the founder and managing partner of Parafi Capital. We manage a little over $2 billion across public and private markets all focused in crypto. Um we've uh we did our first DAT deal in January of this year. Soul Strategies which is a Canadian-based uh issuer. Since we've done 25 to 30 different DAT deals um we've done Pipes Converts Preferreds. Uh we've also done deals outside of the US. So, South Korea, Brazil, London, back Jeff on this uh in in his new DAT. Um have done deals with Christian, have co-invested with Seth. Um so, you know, we've seen the good, the bad, and the ugly of the DAT world and excited to excited to talk about it. Love it. Hi everyone. My name is Jeff Park and I am the CIO of Procap, which is one of the Bitcoin treasury companies that will go online hopefully later this year if the SEC were to ever reopen, God willing. Um, before that I was at Bitwise. I was the head of Alpha Strategies. Um, and very happy to be here. Hey everybody. Uh, Christian Lopez. I am a managing director and head of digital assets at Cohen & Company. Uh, Cohen is a investment bank kind of full service capital markets M&A strategic advisory. Um, you know, a big focus of ours is a digital asset and crypto industry. Uh we've done you know I think over a dozen DATs led over a dozen DATs from an investment banking standpoint this year worked with Jeff's team worked with these guys across as investors um as principles and sponsors seen every type of structure um from spaxs to RTO's to to pipes and to vehicles um and I think we understand you know the playbook that works and what doesn't but it's been it's been a whirlwind so far uh yeah that's that's me. Hey, Seth Gins, uh, managing partner at Coin Fund. I run our liquid fund, friends with everyone on stage here. Um, and, um, we, um, CoinFund, we have just under two billion AUM across, uh, venture and liquid. Um, and on the liquid side, uh, we we have backgrounds in public equities. So, uh, I was a large cap growth investor for 18 years before coming full-time into crypto. Um, so DAT's kind of made a lot of sense to to our team. Um, and and we've been uh fairly prolific investors uh across the the DAT space. So again, lots of perspectives on uh what's working, what's not, what the future looks like for DATs. Amazing. So it's funny at the last digital asset summit, I also hosted a DAT panel and at that time this was believe in March. So the the meta was really just starting to get going. But that panel was a lot of just getting into some of the basics of it and getting people up to speed. But this time I'm going to assume some knowledge from the audience and just really get into the nuts and bolts of that because we are we are well into the meta now. So we we at Blockworks have a dig digital asset treasury company dashboard there. And in preparation for this this panel I went in there and just wanted to start to count out. All right. So out of the amount of DATs that we cover, I calculated that 61% of them are now trading at a discount to MNAV. So, with that as the context, I would love to just hear from you all of what does that say about where we're at in terms of this meta and and what are some of the implications from the industry? Um, anybody want to jump in? Just go for it. Yeah, I'm happy to. I mean, I I think we um we look at DATs as being individual investments and there's actually a power law distribution on returns within the the DAT space. And um we we can go into some of the details of this, but the trading volume that uh ADAT sees once it's um liquid is a key component. It actually before it uh its registration goes effective as well is a key component of the health of that DAT. Um and and if you look in the ETH space for instance, you have the the largest uh DAT in Bitine. The next largest is trading onetenth of the volume of bit mine and then the the next highest trading volume that after that is trading onetenth of the second one. So a a steep drop off in in trading volume. The trading volume is important because that's what you sell your at the market facility into. That's where you issue uh primary shares, raise capital, and then you use that capital to uh to buy the underlying token. Um so we we've taken the view from the start that you're going to see differentiation and and you're seeing differentiation um a few big winners and then a lot of DATs that that will be very helpful for ecosystems but we think of them more as ETF pluses rather than having a a 10x type return from from the pipe price. Yeah. Go ahead. I yeah, I would just add that um I think like the state of the market can be just simply described with supply and demand. Uh simply put, there are just too many DATs and not enough demand to buy those DATs. Um there's no reason why you need like a a 13th or 14th Ethereum DAT. There's not enough differentiation there. Um so what we saw is there are now roughly 200 DATs. Most of the top 20 25 tokens have a DAT. you know, Bitcoin and ETH certainly and Solana certainly have multiple DATs and uh many of these DATs are now going through kind of a crucible moment where they're trading below NAV. There's not much differentiation um and they have to figure out, okay, what do you do? Do you do you sell your underlying digital asset and buy back stock? Do you issue converts to buy back your stock? Do you kind of do nothing and just kind of continue to, you know, uh to to market your vehicle and talk educate investors? Do you start an operating business? Um but we're kind of at this weird point in the market where there was just too much supply that came online earlier this year and um now many of these DATs are figuring out kind of what what's what comes next. Uh yeah, agreed. I mean I think I'll jump in and you know there there's one aspect to this that I don't think people talk enough about is is really it's a technical component right um these you know these the flavor of debt that has kind of emerged as the winner is you know pipe into an existing public company typically like a micro cap that has four or five million shares outstanding and you go issue a few hundred million dollars in the form of a pipe that's a lot of new shares that's hundreds of millions potentially of new shares that are outstanding. And I think what some companies, some dots did early on is really just allow all those shares to register simultaneously. And these things take, you know, 45 60 plus days for the SEC to go through its review process, potentially have any comments, and then their shares all register. And you know, you you kind of have, you know, if these especially if they're trading at a strong premium to MNAV, investors all racing for the exits at the same time because not all but many investors are really here for the trade or at least want to take some money off the table because they see that high premium. And so when you have all those shares register at the same time, selling that selling pressure into the market is going to drive it down until it finds that bid. And frankly, there's just not enough of that bid available, which I think is partially why some of those are trading below MNAV, at least for now. Um, I think maybe some still, you know, you guys might know, but some PIP investors might still be in the trade. And anytime that there's increased liquidity, which is a really important aspect to it. Um, and we could talk about that post like pipe execution. Um, but until you find that, I think people will trade at or below or maybe slightly above that now until you flush out all of the money that wants to rotate out and find that new investor base. But it's that technical aspect in the beginning that I think are people are starting to fix and BMR and others orbs have done a great job of fixing by putting in a kind of a 50% lock up for 30 days post initial registration. Yeah, there's a really interesting dynamic because we've been talking about pipes, but when you look at specs, um, we we really haven't had DSpaxs yet within the the DAT space. So, I think there's there's a a really interesting opportunity when the DSPbacks happen to actually see them trade above NAV, get trading volume, have more of a pristine, clean structure. Um it's a little TBD but Yeah. Yeah. No, I completely agree. I think I think one of the optical challenges the space has experienced is that the capital formation process itself in a pipe transaction has asymmetric information. And so your most informed and willing participants are the ones that are actually locked up and unable to kind of communicate towards the investment activities they would like to conduct. And so not only with the lowflat element, but there's actually no good information that can come out of those who are behind the wall that is able to tell the story, right? And so when you have a dynamic where the stock goes up a bunch and there are retail investors getting involved in a in a period in which the price discovery is not being perfected by actual price discovery of intelligent market investors, there's a little bit of a problem. Um and I think to one extent the spec structure its blessing is at some level that it is anchored towards the dispect needing to first happen for it to actually become a live trade in itself. And so in some sense if you're not able to have the volatility of the stock at the level in which there's kind of a mania of the lowflow dynamic then I think there's a benefit we can acrue on the back end of it later when the consummation does happen. Yeah. Yeah. I want to take uh Seth's characterization of this power law dynamic that looks like it's likely going to occur and just would love to explore and hear how you're all thinking about what I think we can all agree and we're kind of hinting at this idea of some sort of consolidation that is likely to occur and I'd love to hear how are you all thinking about this. Do we just see the situation where you know you got you got Micro Strategy on the Bitcoin, you got BMR for for ETH perhaps, you know, forward for Salana and you get these few winners for each asset and they go forth and and you know through various ways potentially acquire some of these at a discount that could be pretty accretive. Um would love to just hear how are you all thinking about what that process might look like. Go ahead Ben. Uh well so um one very like you know you kind of framed it is like if you if a dad is trading below 1x MNAV let's say it's trading at 0.9 and someone comes along and does a stock for stock merger to acquire that company that's effectively like buying the underlying digital asset at a 10% discount uh uh to what you could buy it at in the open market. So I think M&A starts to come into the four when these things trade below 1x. Um that's if you're like let's say that's if you're a Bitcoin DAT acquiring another uh Bitcoin DAT. It would make sense in that scenario. There's also kind of crossasset more hostile DAT M&A that I think we'll see play out where if you're you know an Ethereum DAT you acquire a Salana DAT you sell all the Salana and you rotate into ETH. So I think you'll start to see that game played as as well. Um but the real so I think that's like the most logical way things consolidate and I think like what will catalyze a lot of the consolidation is a lot of the spa a lot of the um DAT sponsors are highly mercenary like this is like their second job right they're going to they did a DAT because like they saw it as like a way to quickly make money um their shares lock you know are under a lockup and like you know if they can just like hand off the the you know vehicle to someone else to the winner. Um, I think they'll they'll want to do that rather than running like an irrelevant like seventh, eighth, ninth largest debt in a certain asset category. So, yeah, to Ben's point, I think we're already seeing signs of those happening. There was an announcement by Strive acquiring Similar Scientific in the news on a share per share deal. So, it's already happening. Um I think though I have a slightly nuanced take as to kind of how many categories there will be um per per token asset. I say in the sense that because these uh entities are ultimately led by operators there is an element to path dependencies for each of these treasuries achieving different outcomes that serve different client or investor based needs. And what I mean by that is um when you buy Bitcoin, right? Like you don't really need diversification beyond maybe counterparty because you care about the custodial relationship, but Bitcoin is Bitcoin. If you're trying to take different kinds of risks on top of that with a managerial level, then I do think there is some benefit to having different operating diversifications as well. Take for example, right now there's preferred equity that strategy has issued and people seem to really like it and you may then want to have more of the kind of economic exposure, but maybe you don't want to just bet the horse on sailor, right? Like that that single keyman risk might in itself be a detractor. So you do actually want to prep from another well-run DAT just from a diversification point alone. Um I think there's a real possibility that could happen, but to Ben's point, there's probably some scale velocity that you do need to escape, right? Being a public company is not cheap. And so there is actually a minimum market cap threshold that I think every debt needs to accomplish to be able to afford the privilege of being a public company. But once you get past that, I think there is room to imagine there is some diversification benefits for the different strategies that might be pursued along the way. Just I want to touch on on Ben's point earlier. Um you know consolidation will happen for sure, but I don't know how soon that's going to happen. I think it's going to take a little bit of a longer time. Um, if you've been in the DAT world over the last several months with I which all of us have been and I'm sure many of you in the crowd have been, you know, it's only been like seven, eight months of real DAT play. It's felt like a lifetime. You know, I I don't think a lot of us have slept very much over the last eight months. So maybe feels like two, three years. Um, but the reality is we're still kind of early and these deals are just starting to close. like company management teams are just starting to get their footing and understanding what the public capital markets are like and then thinking about how do I generate value and I do think there's like a a people element and like a pride element of these folks the sponsor groups who have started DATs and they want to prove to the market that hey I can drive value for my investors I don't want to trade I don't want to just give up and trade at like 08 MNAV without trying I think it's too early um so it will happen but there's it's going to be a lot harder to get uh M&A done in the space in the near term than I think people may believe it is. I think what one of the elements that we're finding is super important. So, so we say structure which is basically the selection of the shell uh again going to to the pipe structure um execution and then the chairman th those are the three key elements to to kind of hit that flywheel and I think like there's a real shortage and and the chairman is important because we're talking about the these stats really are creating a bridge between traditional finance and crypto. they really are leading um traditional investors to learn more about what's happening in crypto to understand what's happening at the underlying protocols. They need trading volume to be able to engage um what you were talking about Jeff on the pref side. It happens in common as well, right? If if you have a DAT that's only trading a few hundred million a day and a a buyside firm that has 10 20 billion AUM, they they might actually need multiple DATs in the same asset to be able to get to their their full position. Um but but the the chairman is really important for helping on that education process going out marketing to institutional investors to the buy side. And there's so few people right now that have that network either a traditional sellsider um who has a network on the buy side and is bullish on crypto um or uh a former CEO or former CFO again who's made a lot of money for traditional bysiders has a a great reputation and understands crypto and blockchain and is willing to put their reputation out there. It it's a really small group of people, but the the positive dynamic is that pool of potential chairman, potential like spearheaders of that education process is only expanding on a month-by-month basis. Yeah. So, I want to ask about one of the key considerations that comes up when these data gets released for a certain coin is one of the key considerations for the potential marginal buyer on the open market is all right. So, as this deal takes place, where are the tokens actually coming from? Are they raising a bunch of cash if they're going to go into the open market and buy the token? Are they going to do an OTC deal with the foundation? Where are those coins coming from? Are they coming from VCs that are that are locked in some sort of OTC transaction there as well, which you know might be good for just the lack of supply hitting the market later down the road, but maybe it's not creating that marginal increase on the open market. Would love to just hear about how do you think that right balance is between those three? Who wants to grab that one? Well, I I think the answer is like it's coming from all three of those categories. Um, now like I think they each serve a different purpose. Like often like when one of one of these DATs gets announced or even before it gets announced, you start to see the spot token the the token behind the DAT run up in in spot markets almost like front running the the purchase. Um, you know, you you see um also many of these DATs basically take investor to locked investor tokens. um receive those in kind maybe at a slight discount to market prices that helps them blend down kind of the MNAV for these pipe investors. I think you know generally venture investors you know uh think about is like look they have they have a locked up asset that they can't sell maybe they're on like a two-year lockup um they can put that into a DAT and effectively accelerate their lockup period accelerate the liquidity profile on those tokens. So you've seen a lot of that dynamic. And then lastly, um I mean many of these deals like bankers, uh and Christian probably speak to this better than I could, but they you kind of want to price the deal around 1xmnav. And so oftent times foundations who are highly incentivized to get debt into the market are willing to offer um you know uh tokens from their foundation at a big discount to market prices. Um they the way they think about it is look the these debts are effectively permanent capital vehicles. Um they have very very long time preference. They're never going to sell these tokens. So they don't underwrite to those tokens entering the market. Um but they're able to put them in at a big discount to kind of get these DATs from 0 to one. Uh in terms of what the right balance is between those three, I think it's totally depends on on uh you know the DAT itself and what what asset they're they're buying. Obviously for Bitcoin and ETH, there's no foundation that can sell discounted tokens. There are no lock tokens, but certainly for the longer tale of alts, that dynamic starts to come into the four. Well, where I've seen um yeah, yes, it it's it's definitely a mix and you're seeing investors come in with cash, investors come in with uh with the underlying and then foundations participate. um where I've seen the most successful outcomes especially in the beginning and frankly it's been tougher right for the for the for the altcoins they haven't performed as well as maybe the ETH or the BTC plays uh but where I've seen the most success is you know roughly about 50 at least 50% of the investment comes in cash and then the rest in kind whether that's contribution from investors or the foundation um and I you know I think it's because of that almost like the reflexivity that occurs occurs, you take the cash, you use it to go buy a token in the open market, which drives, you know, should drive the price of the token, increases the book value of the company, which should drive the share price. Of course, you know, combined with the execution of having your chairman, having a good PR strategy afterwards, that creates the flywheel um that I think few people have been able to perfect. But yeah, so it's actually interesting. I think like a little adjacent to to your question, Felix, but I think the the pipe size gets priced in pretty efficiently. Yeah. Right. So like the market sees a uh a data is coming that that's 500 million. It's going to buy 500 million sold or or get it in one way or another. The market understands what that impact is and you get that move pretty quickly into the the launch. What doesn't get priced in is that flywheel. So, if you're one of the the DATs that's able to and what what do I mean by the flywheel again? I mean trade at a a premium to to NAV and actually have trading volume so that you can you can actually monetize that that premium if you're able to get that flywheel. That's what's not priced in. That's what gives you the sustain moved higher. That's what happened in ETH when you had ESP, BMR, ETHZilla, all of those uh coming at once. Jeeoff, anything to add there? No, I agree with everything um everyone said. One thing I might add is the flywheel also has to be authentically organic. I think this is the part that sometimes crypto investors are hyper sensitive to, right? They're really just very um tuned to this mercenary nature that the crypto VC ecosystem can operate in and they're conditioned a little to be skeptical. And so I remember at the very beginning of the due diligence process, people would ask about whether foundations would participate in these data or not. And initially it started off as like a positive signal. I remember people were like oh okay the foundation's that's a good thing. It's like they're kingmaking this particular vehicle and then the meta like changed over time was like wait so like now the foundation is actually kind of doing mercenary things to the vehicle to which subsidizing that activity and you'd then not want the foundation involved and so people like can't make up their minds. And I think this all goes back to this idea that people like want to believe they invest in something with transparency as to knowing how that flywheel is made. So it's not just like the investors. There's other dynamics too where outside of Bitcoin where if it's a proof ofstake operating system, there's things that can earn income by being a validator as part of the system. And there's affiliate dynamics there that people have raised questions about as to well who's running what and which left pocket is going to which right pocket. And then you see things with like asset management contracts where you see wait is the pipe investor then somehow being involved on the back end through an asset management contract of those treasury assets and they're asking all the right questions. I actually think this is very important that investors know what they're doing uh ultimately with their own capital to support. But this all goes back to why I think Seth said to your point like the the the seasoned kind of operators behind it matter so much, right? This isn't just like an ETF where you buy the asset and it wraps in a cheap transparent costefficient structure. It's actually run by human beings and human beings who are going to for years build value cruel mechanisms on top of it. And that litmus test of whether this is like a trustworthy endeavor or not is a hugely important one. And so that organic flywheel I think is what people are trying to understand as close as possible. Yeah. So one of my goals with this panel is just to you know we hear we throw around the word DAT and I think there's this misconception that people view that all is like you know there's one DAT, two DAT, three DAT. They're all the same but they're not at all. There's actually a lot of different structures and variations of it. Seth you mentioned earlier how the the the most established one these days that we landed on is this idea of a of a private placement or a pipe going into a public micro cap. And one of the the key criticisms there that I you know has been talked about is just the lack of transparency around what those deals truly look like in terms of all right so we get these pipe deals and you know the the investment bank that underwrites that they get their fee but we don't really know you know how long how long are they locked up for in those pipes and the like and so I would just love to hear from Evolve how do you think we can just elevate the transparency around those deals so that the average investor who's buying on the public market can get a better understanding of of what does that supply demand structure look like for these shares? Yeah, I I think there's a key element of transparency. Look, the equities markets have a lot more transparency than than what we have in crypto markets to to begin with. Um, I I would say that said, you have to you have to read the the filings. Um, and not many people read filings. Um, or sometimes they read it and they actually totally misunderstand it. that and then crypto Twitter of course has its own kind of feedback loop that's incredibly recursive. I I remember with the uh with the espet um S3 the the way the S3 is presented it shows all investors a theoretical where all investors have sold and crypto Twitter was running with that saying everyone is selling out of that's standard on any that's standard on registering all all shares for sale. Yeah. Um so I I think that transparency is there. Um, but there's definitely an education process. This is a new approach to to crypto assets. And the idea that you might not want to to buy in at a big premium to NAV when the PIPE investors are not liquid yet is something that that people figure out as they go through the documentation or the the filings and as they they invest in a few of these. Yeah. I mean, it's it's mostly all I mean, it's it's in there, right? It's in the it's in the footnotes. it's in the definitive documentation. A lot of it is in sometimes sophisticated legal language and parsing through it isn't necessarily the easiest thing to do. Um, but I think what folks I think have failed to do, especially more retail, is try to understand what that actual MNAF calculation is. They kind of buy on the hype. They see, you know, you know, the the DAT's trading at, you know, $30 when it was trading at two bucks a share and they're like, this is great. This is going to the moon. But the reality what that says is it's probably trading at like a 20 30 times M enough and that you know fundamental analysis isn't really being done. Um so I don't know who needs to do this but there's you know Twitter personalities out there that I think could do a better job of educating the market. Yeah I I I agree and I I would I would also um I would also add that um like I actually think crypto is more transparent than um in many cases than than Tradfi. I mean if I want to know what's going on with Athena or A or any you know onchain protocol I have real time transparent auditable wallet bywallet block byb block onchain data um the issue with these dats that I find is even with perfect disclosures even if you do read all the footnotes you could ask an analyst at Blockworks and an analyst at Msari what the MNAV is on you know BMR and you get like two different answers um maybe one of them is including undeployed cash in NAV. Maybe one of them is you know you know including like RSUs or options maybe they're converting the options under like you know treasury method or some other methods. They're different methodologies and so it is very difficult for us. So we just internally tried you know we built our own DA uh DAT dashboard and we tried desperately to automate it but the issue is like what these different dats disclose can be can be quite different and so it's really a manual for us at least maybe there are people that are are better at it but it's it's very manual bottoms up in terms of understanding exactly what MNAV is at at a specific point in time not to mention like the timing mismatches on ATM M and share counts. So I I think more disclosure is is needed and um the the beauty of public markets to some extent is you know teams can be more transparent. I think the best teams like we've seen you know create public dashboards that uh you can visit from their website that have more detailed granularity around you know what they what they own. The the one thing I would say about that is I I agree, but there are regulatory restrictions uh about what you can disclose. You have to you know in some cases you you're going to have to wait until that the queue or the quarterly filing to actually disclose what's been done over the past you know quarter which makes it extremely difficult. And I think the other the other part that makes it difficult is because we're so early on the kind of like the trad equity capital markets data sources don't account for crypto. you know, like on Bloomberg, you could only really see if you're pulling from Bloomberg, for example, you only see the price of Bitcoin or crypto assets, but it doesn't pull like how many of the underlying tokens that somebody has. So, let's I think there just needs to be more development in this market and integration between Tradfy and crypto for that to actually happen. But I totally agree. It's difficult. We have us as the bankers, we we're structuring a lot of these deals. It's very manual. Right. Right. I I sympathize with this completely. And yet at the same time I think part of the problem is we treat this MNAV concept as if the starting point of a conversation as to understanding value when in my opinion actually the MNAB is the output of something that will happen if you're actually able to deliver something worthwhile. And so part of this is we're starting by wanting to know the answer without realizing well how do we actually even get to the point where the MNAV means anything whether it's a premium or a discount. In other words, strategy at some level I think set the tone for what an MNAV is because it was the first and the most scalable successful model that has been emulated. But I don't think it's the only model that you can succeed by having MNAV premium by financial engineering on the liability stack alone. Right? That's one version of it. But another very intuitive version I think all of us in this room can understand is if you're able to generate yield on your assets in a durable fashion that has long-term terminal value that itself has a a premium that's that's literally just DCF 101. And so in that sense if you're able to deploy some abilities for earnings power then the MNAV premium will happen as the output of something that was worthwhile. And I think at this stage when most of these companies are nent and haven't been able to yet demonstrate the possibilities we're imagining here the the starting point of it being MNAV is a little bit challenging because it's the wrong kind of start. That's where we should end up. It's it's a privilege to trade out an MNAB premium. Not something that you deserve at the very beginning to be able to go and engage in the financial engineering on the back end of it. Jeeoff, that's a good segue into I want to start exploring the future of where we go from from here on out and just trying to understand what are some of the methods to go about capital raising and obviously we have the Michael Sailor strategy roadmap established which is equity equity issuance and then convertible debts and now preferred and obviously that's one road map but then as you say there's also these methods of all right well let's go for a token that has a inherent staking associated with it and what we can we do there or you know go with what the forward guys are doing which is all right we're start to do some stuff actually onchain and DeFi and elevate that further. So, I just love to hear if yeah, how are all four of you thinking about where we go from here in terms of innovation in terms of capital raising? Yeah, I can kick it off. Um, you know, I think for ProAP, the way we're really thinking about it is we're trying to be like a modern permanent capital vehicle that happens to be denominated with Bitcoin as the arena of accounting and build a durable kind of business around it for the long haul. And it sounds really simple, but that's at the end the execution engine that we're driving. And it starts at first generating yields on the assets to which I think people deserve the chance to earn authentic growth of the asset on a per share basis. When you're able to generate true Bitcoin per share without actually engaging in financial engineering on the liability side, people will immediately understand, oh, I understand what this is. It's like an ETF that's just growing by itself to get more Bitcoin into the rapper. And people will find value in that thing. And you know what? It's really hard to find yield on Bitcoin because Bitcoin is pristine collateral. So when people say, "Oh, Bitcoin yields only 2%." 2% on something that is hard to earn because it's actually very valuable and scarce and not inflating is a big deal. So the other question is if you're able to generate 7% on a DAT that is because it's different in consensus mechanism, there's a there's a real question there about like what is the value capture there versus something else that is actually scarce, right? And so if you're able to do that and generate return on those assets, then I think you'll have the chance to play with the NAV premium to engage in some financial engineering to increase operating leverage on the company. Strategy has four different prep shares out there. Strategy has been able to find different ways to build audiences around those instruments. But I think over time there will be other people who will tinker it differently to see what works better in different circumstances or what features might not be useful. And I think you'll see some diversification on that side. And then only then if you perfect the return on assets and liabilities then I think the true kind of core story is the return on equity which is is there a chance to actually grow your operating cash flow by running a business to which that cash flow can be reinvested to actually then buy more of Bitcoin or whatever that asset that you're acquiring. And I think that's kind of the road map in which there's levels to graduating to earn that privilege. But ultimately the long-term state is to be a permanent capital vehicle for which the operating cash flow can help you acrew more of the unit of account. I think the um yeah it's a great point and you know people have been kind of tinkering with this idea of you know Bitcoin halfway where you go acquire cash flowing businesses that maybe don't have a lot of growth but are generating strong cash flows with even margins over a long time and how do you you know how do you return capital to investors? Is it through the form of dividends, share buybacks, or do you go reinvest it into a pristine cap, pristine capital like Bitcoin? Um, I think there are some companies that are going to go that way and probably have to go that way simply because at the current moment, most DATs do not have the liquidity profile to go do, you know, really interesting financial engineering in the form of different types of leverage like Micro Strategy. I mean the reason Micro Strategy was able to do these syndicated converts is because they were selling volatility they were the only you know they're really the only large DAT trading billions and billions of dollars of volume on you know an asset that's underlying collateral was like an 80 v at some point I think it's come down over the last few months um but because you have that volatility public market investors convert investors could go long the convert it's effectively a synthetic call option and then they go short the stock and they're delta hedge and They play with that delta, right? That's how they earn their yield. But most DATs at this point don't have that that type of volatility, don't have that depth in the equity capital markets. So, they're going to have to find other ways to generate the yield. The proof ofstake DATs have that inherent yield from staking and going doing going and doing interesting things in DeFi. Um, but the way that you find capital raising right now, it's like maybe one way converts with one investor. Um, it's a little bit more expensive, a little more structured. uh but generating that volume and liquidity is should be like goal number one for these DATs so that they find a strong shareholder base that starts trading the stock and you know at the end of the day having that liquidity is the most important piece. I think to to kind of approach the question from a different angle I think we're probably in the very very early phase of institutional interest in crypto. So I I think the pool of traditional financial capital that's looking to invest in a Bitcoin vehicle, an ETH vehicle or altcoin vehicles is a fraction of where it will be in 2 years, 3 years. That's going to be a a big driver I think of valuations in the space of trading volumes of uh the the opportunity setter decision tree around accreting NAV per share. So it it is a secular growth segment of of crypto and we're in the like the third fourth month of it. Yeah. Ju just to like level set um so you know Micro Strategy is going to be in every business school case study around capital structure and capital markets. They're the largest ATM issuer in the history of capital markets. They're the largest convert issuer in the US or globally today. Believe they're also the largest issuer of preferred equity instruments. Their options chain has like the same open interest as Micro Strategy. Um so they're they've tapped into something very very special. They're also getting passive flows. So people that are buying, you know, the NASDAQ 100 are buying micro strategy agnostic to what their NAV is just because they're running rule-based funds. Um, and then, you know, indirectly like as some of that capitals then going to buy Bitcoin. So Micro Strategy though is is in a different camp, but I think like it's it's reflective of what the menu of different options there are to increase um NAV per share. Look, I and it's not exactly your question, but I I think our thesis on on the space on on DATs overall is look, I I think like the easy money has kind of been made. Um most of these pipe deals were kind of heads you win, tails you break even. Um, but I think now going forward to Jeff's to echo Jeff's point, I believe that the best DATs will be able to durably outperform the underlying asset by increasing, you know, units of Bitcoin held per share of fully diluted common stock or units of ETH held per fully diluted share of common stock. I think very few will, but the very high quality ones are capable of doing that. And so, it's about identifying the right team and the right capital market strategy. Um, and then I think you you have something that can potentially, you know, generate alpha. Yeah. All right. One minute left here. Just uh to that point, just quickly, I I think there's a perception disconnect where there's a view that like you create a data and it's kind of like creating an ETF, right? And I I think the the rarity of the DATs that are going to have good businesses that can accrete that NAV per share, that's that power law dynamic. It really is one out of 10, one out of 100. Yeah. And I think that's key where you know some people obviously with the government shutdown right now which is stopping a lot of the ETFs that are were supposed to be launched quite soon and yeah it's a key distinction between the two of you know you have the DATs and then the ETFs as well. So I think that's key. All right that's all the time we have guys. Thank you so much for that. Great State of the Union app. Thank you.
The Digital Asset Treasuries State of the Union | DAS London 2025 | Day 1 | Investor
Summary
Transcript
All right, everybody. Thanks for joining us and we are here for the digital asset treasury state of the union, otherwise known as the DATs state of the union. Very excited to have an esteemed panel. I'll uh start with you, Ben, and just introduce yourself and just love to hear about what's your relevancy towards the DAT world. Yeah. Uh Ben Foreman. Uh is my mic on? Yeah. Okay, great. Ben Foreman. I'm the founder and managing partner of Parafi Capital. We manage a little over $2 billion across public and private markets all focused in crypto. Um we've uh we did our first DAT deal in January of this year. Soul Strategies which is a Canadian-based uh issuer. Since we've done 25 to 30 different DAT deals um we've done Pipes Converts Preferreds. Uh we've also done deals outside of the US. So, South Korea, Brazil, London, back Jeff on this uh in in his new DAT. Um have done deals with Christian, have co-invested with Seth. Um so, you know, we've seen the good, the bad, and the ugly of the DAT world and excited to excited to talk about it. Love it. Hi everyone. My name is Jeff Park and I am the CIO of Procap, which is one of the Bitcoin treasury companies that will go online hopefully later this year if the SEC were to ever reopen, God willing. Um, before that I was at Bitwise. I was the head of Alpha Strategies. Um, and very happy to be here. Hey everybody. Uh, Christian Lopez. I am a managing director and head of digital assets at Cohen & Company. Uh, Cohen is a investment bank kind of full service capital markets M&A strategic advisory. Um, you know, a big focus of ours is a digital asset and crypto industry. Uh we've done you know I think over a dozen DATs led over a dozen DATs from an investment banking standpoint this year worked with Jeff's team worked with these guys across as investors um as principles and sponsors seen every type of structure um from spaxs to RTO's to to pipes and to vehicles um and I think we understand you know the playbook that works and what doesn't but it's been it's been a whirlwind so far uh yeah that's that's me. Hey, Seth Gins, uh, managing partner at Coin Fund. I run our liquid fund, friends with everyone on stage here. Um, and, um, we, um, CoinFund, we have just under two billion AUM across, uh, venture and liquid. Um, and on the liquid side, uh, we we have backgrounds in public equities. So, uh, I was a large cap growth investor for 18 years before coming full-time into crypto. Um, so DAT's kind of made a lot of sense to to our team. Um, and and we've been uh fairly prolific investors uh across the the DAT space. So again, lots of perspectives on uh what's working, what's not, what the future looks like for DATs. Amazing. So it's funny at the last digital asset summit, I also hosted a DAT panel and at that time this was believe in March. So the the meta was really just starting to get going. But that panel was a lot of just getting into some of the basics of it and getting people up to speed. But this time I'm going to assume some knowledge from the audience and just really get into the nuts and bolts of that because we are we are well into the meta now. So we we at Blockworks have a dig digital asset treasury company dashboard there. And in preparation for this this panel I went in there and just wanted to start to count out. All right. So out of the amount of DATs that we cover, I calculated that 61% of them are now trading at a discount to MNAV. So, with that as the context, I would love to just hear from you all of what does that say about where we're at in terms of this meta and and what are some of the implications from the industry? Um, anybody want to jump in? Just go for it. Yeah, I'm happy to. I mean, I I think we um we look at DATs as being individual investments and there's actually a power law distribution on returns within the the DAT space. And um we we can go into some of the details of this, but the trading volume that uh ADAT sees once it's um liquid is a key component. It actually before it uh its registration goes effective as well is a key component of the health of that DAT. Um and and if you look in the ETH space for instance, you have the the largest uh DAT in Bitine. The next largest is trading onetenth of the volume of bit mine and then the the next highest trading volume that after that is trading onetenth of the second one. So a a steep drop off in in trading volume. The trading volume is important because that's what you sell your at the market facility into. That's where you issue uh primary shares, raise capital, and then you use that capital to uh to buy the underlying token. Um so we we've taken the view from the start that you're going to see differentiation and and you're seeing differentiation um a few big winners and then a lot of DATs that that will be very helpful for ecosystems but we think of them more as ETF pluses rather than having a a 10x type return from from the pipe price. Yeah. Go ahead. I yeah, I would just add that um I think like the state of the market can be just simply described with supply and demand. Uh simply put, there are just too many DATs and not enough demand to buy those DATs. Um there's no reason why you need like a a 13th or 14th Ethereum DAT. There's not enough differentiation there. Um so what we saw is there are now roughly 200 DATs. Most of the top 20 25 tokens have a DAT. you know, Bitcoin and ETH certainly and Solana certainly have multiple DATs and uh many of these DATs are now going through kind of a crucible moment where they're trading below NAV. There's not much differentiation um and they have to figure out, okay, what do you do? Do you do you sell your underlying digital asset and buy back stock? Do you issue converts to buy back your stock? Do you kind of do nothing and just kind of continue to, you know, uh to to market your vehicle and talk educate investors? Do you start an operating business? Um but we're kind of at this weird point in the market where there was just too much supply that came online earlier this year and um now many of these DATs are figuring out kind of what what's what comes next. Uh yeah, agreed. I mean I think I'll jump in and you know there there's one aspect to this that I don't think people talk enough about is is really it's a technical component right um these you know these the flavor of debt that has kind of emerged as the winner is you know pipe into an existing public company typically like a micro cap that has four or five million shares outstanding and you go issue a few hundred million dollars in the form of a pipe that's a lot of new shares that's hundreds of millions potentially of new shares that are outstanding. And I think what some companies, some dots did early on is really just allow all those shares to register simultaneously. And these things take, you know, 45 60 plus days for the SEC to go through its review process, potentially have any comments, and then their shares all register. And you know, you you kind of have, you know, if these especially if they're trading at a strong premium to MNAV, investors all racing for the exits at the same time because not all but many investors are really here for the trade or at least want to take some money off the table because they see that high premium. And so when you have all those shares register at the same time, selling that selling pressure into the market is going to drive it down until it finds that bid. And frankly, there's just not enough of that bid available, which I think is partially why some of those are trading below MNAV, at least for now. Um, I think maybe some still, you know, you guys might know, but some PIP investors might still be in the trade. And anytime that there's increased liquidity, which is a really important aspect to it. Um, and we could talk about that post like pipe execution. Um, but until you find that, I think people will trade at or below or maybe slightly above that now until you flush out all of the money that wants to rotate out and find that new investor base. But it's that technical aspect in the beginning that I think are people are starting to fix and BMR and others orbs have done a great job of fixing by putting in a kind of a 50% lock up for 30 days post initial registration. Yeah, there's a really interesting dynamic because we've been talking about pipes, but when you look at specs, um, we we really haven't had DSpaxs yet within the the DAT space. So, I think there's there's a a really interesting opportunity when the DSPbacks happen to actually see them trade above NAV, get trading volume, have more of a pristine, clean structure. Um it's a little TBD but Yeah. Yeah. No, I completely agree. I think I think one of the optical challenges the space has experienced is that the capital formation process itself in a pipe transaction has asymmetric information. And so your most informed and willing participants are the ones that are actually locked up and unable to kind of communicate towards the investment activities they would like to conduct. And so not only with the lowflat element, but there's actually no good information that can come out of those who are behind the wall that is able to tell the story, right? And so when you have a dynamic where the stock goes up a bunch and there are retail investors getting involved in a in a period in which the price discovery is not being perfected by actual price discovery of intelligent market investors, there's a little bit of a problem. Um and I think to one extent the spec structure its blessing is at some level that it is anchored towards the dispect needing to first happen for it to actually become a live trade in itself. And so in some sense if you're not able to have the volatility of the stock at the level in which there's kind of a mania of the lowflow dynamic then I think there's a benefit we can acrue on the back end of it later when the consummation does happen. Yeah. Yeah. I want to take uh Seth's characterization of this power law dynamic that looks like it's likely going to occur and just would love to explore and hear how you're all thinking about what I think we can all agree and we're kind of hinting at this idea of some sort of consolidation that is likely to occur and I'd love to hear how are you all thinking about this. Do we just see the situation where you know you got you got Micro Strategy on the Bitcoin, you got BMR for for ETH perhaps, you know, forward for Salana and you get these few winners for each asset and they go forth and and you know through various ways potentially acquire some of these at a discount that could be pretty accretive. Um would love to just hear how are you all thinking about what that process might look like. Go ahead Ben. Uh well so um one very like you know you kind of framed it is like if you if a dad is trading below 1x MNAV let's say it's trading at 0.9 and someone comes along and does a stock for stock merger to acquire that company that's effectively like buying the underlying digital asset at a 10% discount uh uh to what you could buy it at in the open market. So I think M&A starts to come into the four when these things trade below 1x. Um that's if you're like let's say that's if you're a Bitcoin DAT acquiring another uh Bitcoin DAT. It would make sense in that scenario. There's also kind of crossasset more hostile DAT M&A that I think we'll see play out where if you're you know an Ethereum DAT you acquire a Salana DAT you sell all the Salana and you rotate into ETH. So I think you'll start to see that game played as as well. Um but the real so I think that's like the most logical way things consolidate and I think like what will catalyze a lot of the consolidation is a lot of the spa a lot of the um DAT sponsors are highly mercenary like this is like their second job right they're going to they did a DAT because like they saw it as like a way to quickly make money um their shares lock you know are under a lockup and like you know if they can just like hand off the the you know vehicle to someone else to the winner. Um, I think they'll they'll want to do that rather than running like an irrelevant like seventh, eighth, ninth largest debt in a certain asset category. So, yeah, to Ben's point, I think we're already seeing signs of those happening. There was an announcement by Strive acquiring Similar Scientific in the news on a share per share deal. So, it's already happening. Um I think though I have a slightly nuanced take as to kind of how many categories there will be um per per token asset. I say in the sense that because these uh entities are ultimately led by operators there is an element to path dependencies for each of these treasuries achieving different outcomes that serve different client or investor based needs. And what I mean by that is um when you buy Bitcoin, right? Like you don't really need diversification beyond maybe counterparty because you care about the custodial relationship, but Bitcoin is Bitcoin. If you're trying to take different kinds of risks on top of that with a managerial level, then I do think there is some benefit to having different operating diversifications as well. Take for example, right now there's preferred equity that strategy has issued and people seem to really like it and you may then want to have more of the kind of economic exposure, but maybe you don't want to just bet the horse on sailor, right? Like that that single keyman risk might in itself be a detractor. So you do actually want to prep from another well-run DAT just from a diversification point alone. Um I think there's a real possibility that could happen, but to Ben's point, there's probably some scale velocity that you do need to escape, right? Being a public company is not cheap. And so there is actually a minimum market cap threshold that I think every debt needs to accomplish to be able to afford the privilege of being a public company. But once you get past that, I think there is room to imagine there is some diversification benefits for the different strategies that might be pursued along the way. Just I want to touch on on Ben's point earlier. Um you know consolidation will happen for sure, but I don't know how soon that's going to happen. I think it's going to take a little bit of a longer time. Um, if you've been in the DAT world over the last several months with I which all of us have been and I'm sure many of you in the crowd have been, you know, it's only been like seven, eight months of real DAT play. It's felt like a lifetime. You know, I I don't think a lot of us have slept very much over the last eight months. So maybe feels like two, three years. Um, but the reality is we're still kind of early and these deals are just starting to close. like company management teams are just starting to get their footing and understanding what the public capital markets are like and then thinking about how do I generate value and I do think there's like a a people element and like a pride element of these folks the sponsor groups who have started DATs and they want to prove to the market that hey I can drive value for my investors I don't want to trade I don't want to just give up and trade at like 08 MNAV without trying I think it's too early um so it will happen but there's it's going to be a lot harder to get uh M&A done in the space in the near term than I think people may believe it is. I think what one of the elements that we're finding is super important. So, so we say structure which is basically the selection of the shell uh again going to to the pipe structure um execution and then the chairman th those are the three key elements to to kind of hit that flywheel and I think like there's a real shortage and and the chairman is important because we're talking about the these stats really are creating a bridge between traditional finance and crypto. they really are leading um traditional investors to learn more about what's happening in crypto to understand what's happening at the underlying protocols. They need trading volume to be able to engage um what you were talking about Jeff on the pref side. It happens in common as well, right? If if you have a DAT that's only trading a few hundred million a day and a a buyside firm that has 10 20 billion AUM, they they might actually need multiple DATs in the same asset to be able to get to their their full position. Um but but the the chairman is really important for helping on that education process going out marketing to institutional investors to the buy side. And there's so few people right now that have that network either a traditional sellsider um who has a network on the buy side and is bullish on crypto um or uh a former CEO or former CFO again who's made a lot of money for traditional bysiders has a a great reputation and understands crypto and blockchain and is willing to put their reputation out there. It it's a really small group of people, but the the positive dynamic is that pool of potential chairman, potential like spearheaders of that education process is only expanding on a month-by-month basis. Yeah. So, I want to ask about one of the key considerations that comes up when these data gets released for a certain coin is one of the key considerations for the potential marginal buyer on the open market is all right. So, as this deal takes place, where are the tokens actually coming from? Are they raising a bunch of cash if they're going to go into the open market and buy the token? Are they going to do an OTC deal with the foundation? Where are those coins coming from? Are they coming from VCs that are that are locked in some sort of OTC transaction there as well, which you know might be good for just the lack of supply hitting the market later down the road, but maybe it's not creating that marginal increase on the open market. Would love to just hear about how do you think that right balance is between those three? Who wants to grab that one? Well, I I think the answer is like it's coming from all three of those categories. Um, now like I think they each serve a different purpose. Like often like when one of one of these DATs gets announced or even before it gets announced, you start to see the spot token the the token behind the DAT run up in in spot markets almost like front running the the purchase. Um, you know, you you see um also many of these DATs basically take investor to locked investor tokens. um receive those in kind maybe at a slight discount to market prices that helps them blend down kind of the MNAV for these pipe investors. I think you know generally venture investors you know uh think about is like look they have they have a locked up asset that they can't sell maybe they're on like a two-year lockup um they can put that into a DAT and effectively accelerate their lockup period accelerate the liquidity profile on those tokens. So you've seen a lot of that dynamic. And then lastly, um I mean many of these deals like bankers, uh and Christian probably speak to this better than I could, but they you kind of want to price the deal around 1xmnav. And so oftent times foundations who are highly incentivized to get debt into the market are willing to offer um you know uh tokens from their foundation at a big discount to market prices. Um they the way they think about it is look the these debts are effectively permanent capital vehicles. Um they have very very long time preference. They're never going to sell these tokens. So they don't underwrite to those tokens entering the market. Um but they're able to put them in at a big discount to kind of get these DATs from 0 to one. Uh in terms of what the right balance is between those three, I think it's totally depends on on uh you know the DAT itself and what what asset they're they're buying. Obviously for Bitcoin and ETH, there's no foundation that can sell discounted tokens. There are no lock tokens, but certainly for the longer tale of alts, that dynamic starts to come into the four. Well, where I've seen um yeah, yes, it it's it's definitely a mix and you're seeing investors come in with cash, investors come in with uh with the underlying and then foundations participate. um where I've seen the most successful outcomes especially in the beginning and frankly it's been tougher right for the for the for the altcoins they haven't performed as well as maybe the ETH or the BTC plays uh but where I've seen the most success is you know roughly about 50 at least 50% of the investment comes in cash and then the rest in kind whether that's contribution from investors or the foundation um and I you know I think it's because of that almost like the reflexivity that occurs occurs, you take the cash, you use it to go buy a token in the open market, which drives, you know, should drive the price of the token, increases the book value of the company, which should drive the share price. Of course, you know, combined with the execution of having your chairman, having a good PR strategy afterwards, that creates the flywheel um that I think few people have been able to perfect. But yeah, so it's actually interesting. I think like a little adjacent to to your question, Felix, but I think the the pipe size gets priced in pretty efficiently. Yeah. Right. So like the market sees a uh a data is coming that that's 500 million. It's going to buy 500 million sold or or get it in one way or another. The market understands what that impact is and you get that move pretty quickly into the the launch. What doesn't get priced in is that flywheel. So, if you're one of the the DATs that's able to and what what do I mean by the flywheel again? I mean trade at a a premium to to NAV and actually have trading volume so that you can you can actually monetize that that premium if you're able to get that flywheel. That's what's not priced in. That's what gives you the sustain moved higher. That's what happened in ETH when you had ESP, BMR, ETHZilla, all of those uh coming at once. Jeeoff, anything to add there? No, I agree with everything um everyone said. One thing I might add is the flywheel also has to be authentically organic. I think this is the part that sometimes crypto investors are hyper sensitive to, right? They're really just very um tuned to this mercenary nature that the crypto VC ecosystem can operate in and they're conditioned a little to be skeptical. And so I remember at the very beginning of the due diligence process, people would ask about whether foundations would participate in these data or not. And initially it started off as like a positive signal. I remember people were like oh okay the foundation's that's a good thing. It's like they're kingmaking this particular vehicle and then the meta like changed over time was like wait so like now the foundation is actually kind of doing mercenary things to the vehicle to which subsidizing that activity and you'd then not want the foundation involved and so people like can't make up their minds. And I think this all goes back to this idea that people like want to believe they invest in something with transparency as to knowing how that flywheel is made. So it's not just like the investors. There's other dynamics too where outside of Bitcoin where if it's a proof ofstake operating system, there's things that can earn income by being a validator as part of the system. And there's affiliate dynamics there that people have raised questions about as to well who's running what and which left pocket is going to which right pocket. And then you see things with like asset management contracts where you see wait is the pipe investor then somehow being involved on the back end through an asset management contract of those treasury assets and they're asking all the right questions. I actually think this is very important that investors know what they're doing uh ultimately with their own capital to support. But this all goes back to why I think Seth said to your point like the the the seasoned kind of operators behind it matter so much, right? This isn't just like an ETF where you buy the asset and it wraps in a cheap transparent costefficient structure. It's actually run by human beings and human beings who are going to for years build value cruel mechanisms on top of it. And that litmus test of whether this is like a trustworthy endeavor or not is a hugely important one. And so that organic flywheel I think is what people are trying to understand as close as possible. Yeah. So one of my goals with this panel is just to you know we hear we throw around the word DAT and I think there's this misconception that people view that all is like you know there's one DAT, two DAT, three DAT. They're all the same but they're not at all. There's actually a lot of different structures and variations of it. Seth you mentioned earlier how the the the most established one these days that we landed on is this idea of a of a private placement or a pipe going into a public micro cap. And one of the the key criticisms there that I you know has been talked about is just the lack of transparency around what those deals truly look like in terms of all right so we get these pipe deals and you know the the investment bank that underwrites that they get their fee but we don't really know you know how long how long are they locked up for in those pipes and the like and so I would just love to hear from Evolve how do you think we can just elevate the transparency around those deals so that the average investor who's buying on the public market can get a better understanding of of what does that supply demand structure look like for these shares? Yeah, I I think there's a key element of transparency. Look, the equities markets have a lot more transparency than than what we have in crypto markets to to begin with. Um, I I would say that said, you have to you have to read the the filings. Um, and not many people read filings. Um, or sometimes they read it and they actually totally misunderstand it. that and then crypto Twitter of course has its own kind of feedback loop that's incredibly recursive. I I remember with the uh with the espet um S3 the the way the S3 is presented it shows all investors a theoretical where all investors have sold and crypto Twitter was running with that saying everyone is selling out of that's standard on any that's standard on registering all all shares for sale. Yeah. Um so I I think that transparency is there. Um, but there's definitely an education process. This is a new approach to to crypto assets. And the idea that you might not want to to buy in at a big premium to NAV when the PIPE investors are not liquid yet is something that that people figure out as they go through the documentation or the the filings and as they they invest in a few of these. Yeah. I mean, it's it's mostly all I mean, it's it's in there, right? It's in the it's in the footnotes. it's in the definitive documentation. A lot of it is in sometimes sophisticated legal language and parsing through it isn't necessarily the easiest thing to do. Um, but I think what folks I think have failed to do, especially more retail, is try to understand what that actual MNAF calculation is. They kind of buy on the hype. They see, you know, you know, the the DAT's trading at, you know, $30 when it was trading at two bucks a share and they're like, this is great. This is going to the moon. But the reality what that says is it's probably trading at like a 20 30 times M enough and that you know fundamental analysis isn't really being done. Um so I don't know who needs to do this but there's you know Twitter personalities out there that I think could do a better job of educating the market. Yeah I I I agree and I I would I would also um I would also add that um like I actually think crypto is more transparent than um in many cases than than Tradfi. I mean if I want to know what's going on with Athena or A or any you know onchain protocol I have real time transparent auditable wallet bywallet block byb block onchain data um the issue with these dats that I find is even with perfect disclosures even if you do read all the footnotes you could ask an analyst at Blockworks and an analyst at Msari what the MNAV is on you know BMR and you get like two different answers um maybe one of them is including undeployed cash in NAV. Maybe one of them is you know you know including like RSUs or options maybe they're converting the options under like you know treasury method or some other methods. They're different methodologies and so it is very difficult for us. So we just internally tried you know we built our own DA uh DAT dashboard and we tried desperately to automate it but the issue is like what these different dats disclose can be can be quite different and so it's really a manual for us at least maybe there are people that are are better at it but it's it's very manual bottoms up in terms of understanding exactly what MNAV is at at a specific point in time not to mention like the timing mismatches on ATM M and share counts. So I I think more disclosure is is needed and um the the beauty of public markets to some extent is you know teams can be more transparent. I think the best teams like we've seen you know create public dashboards that uh you can visit from their website that have more detailed granularity around you know what they what they own. The the one thing I would say about that is I I agree, but there are regulatory restrictions uh about what you can disclose. You have to you know in some cases you you're going to have to wait until that the queue or the quarterly filing to actually disclose what's been done over the past you know quarter which makes it extremely difficult. And I think the other the other part that makes it difficult is because we're so early on the kind of like the trad equity capital markets data sources don't account for crypto. you know, like on Bloomberg, you could only really see if you're pulling from Bloomberg, for example, you only see the price of Bitcoin or crypto assets, but it doesn't pull like how many of the underlying tokens that somebody has. So, let's I think there just needs to be more development in this market and integration between Tradfy and crypto for that to actually happen. But I totally agree. It's difficult. We have us as the bankers, we we're structuring a lot of these deals. It's very manual. Right. Right. I I sympathize with this completely. And yet at the same time I think part of the problem is we treat this MNAV concept as if the starting point of a conversation as to understanding value when in my opinion actually the MNAB is the output of something that will happen if you're actually able to deliver something worthwhile. And so part of this is we're starting by wanting to know the answer without realizing well how do we actually even get to the point where the MNAV means anything whether it's a premium or a discount. In other words, strategy at some level I think set the tone for what an MNAV is because it was the first and the most scalable successful model that has been emulated. But I don't think it's the only model that you can succeed by having MNAV premium by financial engineering on the liability stack alone. Right? That's one version of it. But another very intuitive version I think all of us in this room can understand is if you're able to generate yield on your assets in a durable fashion that has long-term terminal value that itself has a a premium that's that's literally just DCF 101. And so in that sense if you're able to deploy some abilities for earnings power then the MNAV premium will happen as the output of something that was worthwhile. And I think at this stage when most of these companies are nent and haven't been able to yet demonstrate the possibilities we're imagining here the the starting point of it being MNAV is a little bit challenging because it's the wrong kind of start. That's where we should end up. It's it's a privilege to trade out an MNAB premium. Not something that you deserve at the very beginning to be able to go and engage in the financial engineering on the back end of it. Jeeoff, that's a good segue into I want to start exploring the future of where we go from from here on out and just trying to understand what are some of the methods to go about capital raising and obviously we have the Michael Sailor strategy roadmap established which is equity equity issuance and then convertible debts and now preferred and obviously that's one road map but then as you say there's also these methods of all right well let's go for a token that has a inherent staking associated with it and what we can we do there or you know go with what the forward guys are doing which is all right we're start to do some stuff actually onchain and DeFi and elevate that further. So, I just love to hear if yeah, how are all four of you thinking about where we go from here in terms of innovation in terms of capital raising? Yeah, I can kick it off. Um, you know, I think for ProAP, the way we're really thinking about it is we're trying to be like a modern permanent capital vehicle that happens to be denominated with Bitcoin as the arena of accounting and build a durable kind of business around it for the long haul. And it sounds really simple, but that's at the end the execution engine that we're driving. And it starts at first generating yields on the assets to which I think people deserve the chance to earn authentic growth of the asset on a per share basis. When you're able to generate true Bitcoin per share without actually engaging in financial engineering on the liability side, people will immediately understand, oh, I understand what this is. It's like an ETF that's just growing by itself to get more Bitcoin into the rapper. And people will find value in that thing. And you know what? It's really hard to find yield on Bitcoin because Bitcoin is pristine collateral. So when people say, "Oh, Bitcoin yields only 2%." 2% on something that is hard to earn because it's actually very valuable and scarce and not inflating is a big deal. So the other question is if you're able to generate 7% on a DAT that is because it's different in consensus mechanism, there's a there's a real question there about like what is the value capture there versus something else that is actually scarce, right? And so if you're able to do that and generate return on those assets, then I think you'll have the chance to play with the NAV premium to engage in some financial engineering to increase operating leverage on the company. Strategy has four different prep shares out there. Strategy has been able to find different ways to build audiences around those instruments. But I think over time there will be other people who will tinker it differently to see what works better in different circumstances or what features might not be useful. And I think you'll see some diversification on that side. And then only then if you perfect the return on assets and liabilities then I think the true kind of core story is the return on equity which is is there a chance to actually grow your operating cash flow by running a business to which that cash flow can be reinvested to actually then buy more of Bitcoin or whatever that asset that you're acquiring. And I think that's kind of the road map in which there's levels to graduating to earn that privilege. But ultimately the long-term state is to be a permanent capital vehicle for which the operating cash flow can help you acrew more of the unit of account. I think the um yeah it's a great point and you know people have been kind of tinkering with this idea of you know Bitcoin halfway where you go acquire cash flowing businesses that maybe don't have a lot of growth but are generating strong cash flows with even margins over a long time and how do you you know how do you return capital to investors? Is it through the form of dividends, share buybacks, or do you go reinvest it into a pristine cap, pristine capital like Bitcoin? Um, I think there are some companies that are going to go that way and probably have to go that way simply because at the current moment, most DATs do not have the liquidity profile to go do, you know, really interesting financial engineering in the form of different types of leverage like Micro Strategy. I mean the reason Micro Strategy was able to do these syndicated converts is because they were selling volatility they were the only you know they're really the only large DAT trading billions and billions of dollars of volume on you know an asset that's underlying collateral was like an 80 v at some point I think it's come down over the last few months um but because you have that volatility public market investors convert investors could go long the convert it's effectively a synthetic call option and then they go short the stock and they're delta hedge and They play with that delta, right? That's how they earn their yield. But most DATs at this point don't have that that type of volatility, don't have that depth in the equity capital markets. So, they're going to have to find other ways to generate the yield. The proof ofstake DATs have that inherent yield from staking and going doing going and doing interesting things in DeFi. Um, but the way that you find capital raising right now, it's like maybe one way converts with one investor. Um, it's a little bit more expensive, a little more structured. uh but generating that volume and liquidity is should be like goal number one for these DATs so that they find a strong shareholder base that starts trading the stock and you know at the end of the day having that liquidity is the most important piece. I think to to kind of approach the question from a different angle I think we're probably in the very very early phase of institutional interest in crypto. So I I think the pool of traditional financial capital that's looking to invest in a Bitcoin vehicle, an ETH vehicle or altcoin vehicles is a fraction of where it will be in 2 years, 3 years. That's going to be a a big driver I think of valuations in the space of trading volumes of uh the the opportunity setter decision tree around accreting NAV per share. So it it is a secular growth segment of of crypto and we're in the like the third fourth month of it. Yeah. Ju just to like level set um so you know Micro Strategy is going to be in every business school case study around capital structure and capital markets. They're the largest ATM issuer in the history of capital markets. They're the largest convert issuer in the US or globally today. Believe they're also the largest issuer of preferred equity instruments. Their options chain has like the same open interest as Micro Strategy. Um so they're they've tapped into something very very special. They're also getting passive flows. So people that are buying, you know, the NASDAQ 100 are buying micro strategy agnostic to what their NAV is just because they're running rule-based funds. Um, and then, you know, indirectly like as some of that capitals then going to buy Bitcoin. So Micro Strategy though is is in a different camp, but I think like it's it's reflective of what the menu of different options there are to increase um NAV per share. Look, I and it's not exactly your question, but I I think our thesis on on the space on on DATs overall is look, I I think like the easy money has kind of been made. Um most of these pipe deals were kind of heads you win, tails you break even. Um, but I think now going forward to Jeff's to echo Jeff's point, I believe that the best DATs will be able to durably outperform the underlying asset by increasing, you know, units of Bitcoin held per share of fully diluted common stock or units of ETH held per fully diluted share of common stock. I think very few will, but the very high quality ones are capable of doing that. And so, it's about identifying the right team and the right capital market strategy. Um, and then I think you you have something that can potentially, you know, generate alpha. Yeah. All right. One minute left here. Just uh to that point, just quickly, I I think there's a perception disconnect where there's a view that like you create a data and it's kind of like creating an ETF, right? And I I think the the rarity of the DATs that are going to have good businesses that can accrete that NAV per share, that's that power law dynamic. It really is one out of 10, one out of 100. Yeah. And I think that's key where you know some people obviously with the government shutdown right now which is stopping a lot of the ETFs that are were supposed to be launched quite soon and yeah it's a key distinction between the two of you know you have the DATs and then the ETFs as well. So I think that's key. All right that's all the time we have guys. Thank you so much for that. Great State of the Union app. Thank you.