Pantera: Why are we optimistic about digital asset treasury companies?

Emerging Trend: Digital Asset Treasury companies (DATs) are a new public market investment avenue, following MicroStrategy's (MSTR) strategy to hold digital assets via permanent capital vehicles listed on stock exchanges.
Investment Appeal: DATs may trade at a premium to NAV due to their ability to grow BTC-per-share (BPS) faster than direct BTC purchases, leveraging capital raises and volatility.
Key Beliefs for Success:
- Market irrationality can sustain premiums.
- MSTR's volatility enables profitable convertible bond sales or call options.
- Management must skillfully exploit these conditions.
Traditional Investor Bridge: DATs simplify crypto investing by converting digital assets into stocks, attracting sidelined capital deterred by crypto-native complexities.
Supply Dynamics: Unlike ETFs, DATs lock supply as closed-end funds, reducing sell pressure and potentially benefiting underlying asset prices.
Pantera’s DAT Investments:
- BTC DAT: Twenty One Capital (CEP), backed by Tether/SoftBank, aims to outpace MSTR in BPS growth.
- SOL DAT: DeFi Development Corp (DFDV) applies MSTR’s model to Solana, leveraging its volatility, staking yields, and untapped demand.
- ETH DAT: Sharplink Gaming (SBET), supported by Consensys, is the first U.S. Ethereum DAT.
Market Impact: Pantera’s backing of DATs has spurred further projects, reflecting growing institutional interest in this model.

Author: Cosmo Jiang, Partner at Pantera Capital

Compiled by: AIMan@Golden Finance

A new area of public market cryptocurrency investing is emerging - Digital Asset Treasury companies (DATs). These companies follow the strategy of MSTR (Strategy, formerly MicroStrategy) and provide digital asset investments through permanent capital vehicles listed on public stock exchanges. After carefully studying the nuances of this strategy, we are convinced of this investment concept and prefer to focus on it.

As investors, we seek to continually test our prior biases. Given the persistence of the MSTR premium and buying by fundamentally oriented funds including Capital Group and Norges, we look for asymmetric opportunities to take advantage of the DAT trend. While the premium may not last forever, there are fundamental reasons to invest in digital asset vault companies and explain why they may be trading at a premium to their underlying net asset value (NAV).

The most basic bullish argument is that through MSTR, it is possible to hold more BTC-per-share (“BPS”) over time than if you bought BTC directly. Let’s do some simple math:

If you buy MSTR at twice the NAV, you are buying 0.5 BTC instead of 1.0 BTC through spot. However, if MSTR is able to raise funds and BPS grows 50% per year (it grew 74% last year), then by the end of the second year, you will have 1.1 BTC - more than if you bought spot directly.

To believe that MSTR can continue to develop BPS, you must believe three things:

1. Stocks sometimes do not trade at fair value, and the market may become irrational, resulting in valuations that are too high relative to net asset value. Any investor who has been in the market for a long enough time knows that the market is not always rational.

2. MSTR stock is highly volatile, which creates the conditions for MSTR to sell convertible bonds, or to capture volatility by selling its own call options, thereby earning a high premium.

3. Management has sufficient financial acumen to take advantage of these conditions.

Looking beyond the horizon, an underappreciated factor driving the success of DATs is how they connect traditional investor behavior to digital asset investing — essentially by converting cryptocurrencies into stocks. The strong demand for products like MSTRs, ETFs, and the new wave of DATs suggests that a large amount of capital was previously sidelined by the complexity of getting started with crypto-native products (e.g. setting up a wallet or crypto exchange account). It’s encouraging to see more capital entering the space now, even if through “old” systems.

From a structural supply perspective, DATs also present an interesting contrast to ETFs: buying DATs effectively locks supply, and since DATs are effectively one-way closed-end funds, the likelihood of selling is low. In contrast, tokens held by ETFs can be dissipated as easily as they are accumulated. This phenomenon may have a better impact on the price of the underlying asset, as DATs can both buy more tokens as their reserves and not encourage selling.

Pantera has invested in several DAT companies.

BTC DAT Companies: The most notable of these is Twenty One Capital (NASDAQ: CEP), led by long-time Bitcoin evangelist Jack Mallers. The company is trying to emulate MSTR's strategy and is backed by three industry giants: Tether, SoftBank, and Cantor Fitzgerald. Twenty One is just big enough to take advantage of all capital market tools, while also having a smaller market cap, so it has the flexibility to grow BPS faster than MSTR and trade at a higher premium. As a company, Pantera is the largest investor in Twenty One's post-IPO Private Investment in Public Equity (PIPE).

SOL DAT Companies: Pantera led the investment in DeFi Development Corp (NASDAQ: DFDV, formerly Janover), which started the DAT trend in the U.S. DFDV, led by CEO Joseph Onorati and CIO Parker White, is taking a page from MSTR’s playbook but applying it to Solana. Solana is an interesting alternative to BTC for several reasons: (a) it may have more upside than BTC due to its shorter maturation period; (b) it has higher volatility than BTC, which means that higher returns can be achieved by exploiting that volatility; (c) its staking yield component can contribute to the growth of SOL per share; and (d) it has more untapped demand because there are fewer alternatives available (e.g., no publicly traded miners and no spot ETFs).

ETH DAT Company: Our latest investment in the space is Sharplink Gaming (SBET), the first Ethereum digital asset vault company in the U.S. SBET is backed by Consensys, a leading Ethereum software company, and Pantera has been working with its team for over a decade.

Pantera’s support of companies such as DFDV, CEP, SBET, and their successful response in the market has helped drive a number of subsequent projects, many of which we continue to actively evaluate.