As more public firms build out altcoin treasuries, investors wait for their ETF counterparts
Powered by ChatGPTSomething shifted when Janover was no longer Janover.
In April, the real estate software firm Janover rebranded to DeFi Development Corporation after former executives from the crypto exchange Kraken took over the company. Weeks before the name change, the firm marked an aggressive pivot toward accumulating $SOL, the sixth-largest cryptocurrency by market capitalization, and even received $24 million in a private equity deal to buy more tokens.
DeFi Dev Corp follows an uptick of publicly traded firms building out altcoin treasuries, or corporate treasuries of cryptocurrencies besides Bitcoin. Canadian company $SOL Strategies (ticker HODL) raised $500 million to purchase $SOL, and the consumer product company Upexi (ticker UPXI) brought in $100 million in funding led by venture firm GSR to do the same. $SOL Strategies disclosed holding 395,000 $SOL as of May 31, with Upexi noting 735,692 $SOL holdings as of June 24.
Beyond Solana, the Minnesota-based affiliate marketing firm SharpLink Gaming bought 188,478 ETH with financial help from crypto infrastructure developer Consensys. SharpLink is now the second-largest holder of ETH behind the Ethereum Foundation, the independent organization overseeing the Ethereum ecosystem’s development. SharpLink has plans to stake its ETH holdings, a move the U.S. Securities and Exchange Commission has yet to allow for a spot ether exchange-traded fund.
The Chinese automotive firm Webus plans to build a $300 million XRP treasury. A chip developer wants to sell $500 million in convertible notes to stock up on BNB. And heck, "TRUMP" is not only a president, verb, but a memecoin treasury strategy for a logistics solutions company as well.
More publicly traded companies are turning to altcoins as part of their corporate treasury strategies. Unlike Bitcoin, altcoins offer access to staking and decentralized finance (DeFi) opportunities that can generate yield for the firm. For a SOL-focused crypto treasury, investors can buy shares of these companies as a form of indirect exposure to Solana while waiting for SEC approval for spot Solana ETFs.
However, altcoin treasuries at public companies carry risks for both the firms and investors compared to ETFs. They provide provisional exposure to altcoins as federal approval for spot crypto ETFs beyond Ethereum, or those staking their assets aside from the Rex-Osprey fund, has yet to arrive.
In crypto, all roads seem to lead to Strategy.
Michael Saylor’s firm, formerly known as MicroStrategy, has been gobbling up Bitcoin since August 2020. Strategy (ticker MSTR) is now the largest corporate holder of Bitcoin, owning around 3% of the total 21 million BTC supply, according to its latest disclosures.
Strategy got ahead of the launch of spot Bitcoin ETFs, which the SEC finally approved on Jan. 10, 2024, enabling institutional and retail investors access to the price of Bitcoin without having to hold the asset directly. With spot Solana ETFs still on the horizon, other firms are following Strategy’s lead.
“What Strategy has done is essentially take Bitcoin the asset, and then do some capital markets activity around it, harnessing that volatility, which is great,” Parker White, chief investment and operating officer of DeFi Dev Corp, told The Block in an interview “We've taken that playbook and dropped it into our playbook.”
Crypto treasury firms, particularly Strategy, operate on a kind of "flywheel" effect. Michael Saylor doesn’t have to rely on the profits from Strategy’s business intelligence software to buy more Bitcoin. When MSTR stock trades higher than the net asset value of the firm’s Bitcoin holdings, Saylor can go into capital markets to raise additional billions by selling MSTR shares or issuing debt to fund additional purchases.
However, White notes that Solana offers more flexibility for DeFi Dev Corp than Bitcoin. Solana’s proof-of-stake consensus mechanism allows the firm to not only earn yield from staking its holdings, but to bolster its staking rewards after the firm agreed to acquire a $SOL validator business for $3.5 million on May 5.
“I like to call it ‘MicroStrategy Plus,’” White says. “Increasingly, that plus sign is just going to get larger and larger and larger, to the point where the MicroStrategy piece kind of fades into the background because it's not the core of what we're doing here.”
White notes that this “MicroStrategy Plus” approach using Solana enables DeFi Dev Corp to be self-sufficient. The firm holds 621,313 $SOL valued at $88.9 million, which can be self-staked using its acquired $SOL validator business to earn passive revenue. Further, the firm plans to earn additional staking rewards from Solana-based tokens Dogwifhat and Bonk to grow its SOL-per-share strategy.
“A lot of people ask this question. They're like, ‘hey, what happens when capital markets dry up? You can't raise capital anymore. Like, aren't you on this perpetual motion machine?’ Actually, we're not,” Parker says. “We could throw away the capital markets activity, never raise another dime of capital, and the business would still be able to generate fairly attractive SOL-per-share growth just because of the validator business.”
“The MicroStrategy piece is important,” White adds. “But we can throw that away and have purely our own playbook and it would still work.”
“A lot of the activity momentum is around Solana, and that's why we didn't really think about doing this on another asset,” White says.
Still, other analysts note that altcoins, despite their use cases in DeFi, are a shakier bet than Bitcoin.
“Bitcoin, I think, has a very different risk profile than any other cryptocurrency,” says Alexander Blume, CEO of Two Prime, a digital asset investment firm for institutions and professional investors.
As Blume notes, Bitcoin is more established than other digital assets, with the token’s whitepaper launching in 2008. The Commodities Futures Trading Commission (CFTC) considers Bitcoin, as well as ETH and other cryptocurrencies, a commodity under the Commodity Exchange Act, which affects regulatory oversight of the asset.
Bitcoin’s 21 million total supply, in addition to its scheduled block reward schedule, helps keep the asset’s inflation in check.
“Solana and Ethereum, at least from where I stand, these are basically just tech startups with human leadership and pretty centralized control, unclear regulatory status in many cases,” Blume says.
He notes Ethereum’s 2022 change from a proof-of-work consensus mechanism to a proof-of-stake in a move called “The Merge,” as well as other changes to inflation and rewards for these assets.
"It's just a very much more human fallible technology company — which, there's nothing bad with it. But it's just a different risk profile than something that doesn't really change at all like Bitcoin," Blume says.
“When you add these you know a corporate treasury strategy as opposed to an ETF, now you're adding on another layer of human decision-making risk,” he adds. “Whereas the ETF, it just sits and is held in custody by BlackRock or whoever. There's fewer of those questions, fewer of those risks added in.”
While the cryptocurrencies themselves carry different risks, other analysts point out the varied motivations for some companies building out altcoin treasuries. VanEck Head of Digital Assets Matthew Sigel previously told The Block that, in his view, some companies with small market capitalizations seeking to raise hundreds of millions for their treasury strategies could be "insider pump and dump" schemes, as the treasuries can inflate the firm's stock prices.
So far, the SEC has not approved spot Solana ETFs. Investment management firms such as Invesco, Galaxy Digital, Van Eck, Bitwise, and 21 Shares have all filed for a spot Solana ETF with the SEC earlier this year. The Block’s Solana ETF tracker shows that 12 funds await regulatory approval as of July 1.
While uncertain when the SEC could approve them, Bloomberg senior ETF analyst Eric Balchunas claims spot Solana ETFs could arrive anywhere between July and October.
The Solana-focused crypto treasuries from firms such as DeFi Development Corp., Upexi, and $SOL Strategies help fill the void for investors in the meantime, especially if they’re eager to add a Solana-exposed investment vehicle to their portfolios.
However, whenever spot Solana ETFs hit the market, investors will likely prefer them over the corporate treasury strategies as a more straightforward investment — though expected inflows are likely to be much lower than those of Bitcoin and ether ETFs.
“The vast majority of normal, average investors, who already use ETFs and are new to crypto anyway, they're gonna feel much safer and sleep at night with the ETFs,” Balchunas told The Block in an interview.