Digital Asset Vault Company: An Emerging Field in Crypto Assets Investment

Digital Asset Trust Companies (DATs) are becoming a new hotspot for public market Crypto Assets investment. These companies adopt a strategy similar to that of a well-known software company by providing digital asset investment through permanent capital instruments listed on public stock exchanges. After in-depth research, we are confident in this investment concept and tend to focus our investments.

As investors, we continuously challenge our existing views. Considering the persistent premium on the stocks of a well-known software company and the buying behavior of some fundamentally-driven funds, we are seeking asymmetric opportunities that leverage the DAT trend. Although the premium may not last forever, there is a reasonable basis for investing in digital asset treasury companies and explaining their trading prices being higher than the underlying net asset value (NAV).

The most basic bullish argument is that through the stock of a well-known software company, over time, it may hold more BTC-per-share ("BPS"). Here's a simple example:

If you buy the company's stock at twice the net asset value, it is equivalent to purchasing 0.5 BTC instead of directly buying 1.0 BTC. However, if the company can raise funds and BPS grows by 50% each year (it grew by 74% last year), then by the end of the second year, you will own 1.1 BTC, which is more than buying the spot directly.

To believe that the company can continue to develop BPS, three points must be trusted:

1. Stocks do not always trade at fair value; the market can become irrational, leading to valuations that are excessively high relative to the net asset value.

2. The company's stock is highly volatile, creating conditions for it to sell convertible bonds or obtain volatility through the sale of its own call options, thus gaining high premiums.

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

One underestimated factor of the success of DAT is its connection between traditional investor behavior and digital asset investment, essentially by converting Crypto Assets into stocks. The strong demand for certain well-known software companies, ETFs, and the new wave of products like DAT indicates that a significant amount of capital was previously marginalized due to the entry complexity of native Crypto Assets products. Encouragingly, more capital is now entering the space through the "old" systems.

From a structural supply perspective, DAT presents an interesting contrast to ETFs: purchasing DAT can effectively lock in supply, as DAT is essentially a one-way closed-end fund with lower chances of being sold. In contrast, the tokens held by ETFs can easily dissipate like accumulation. This phenomenon may have a better impact on the price of the underlying assets, as DAT can both purchase more tokens as reserves and does not encourage sell-offs.

We have invested in multiple DAT companies, including:

BTC DAT Company: A company led by long-time Bitcoin evangelists is trying to emulate the strategy of a well-known software company and has received support from three major industry giants. The company is of moderate size, able to utilize all capital market tools, and with a smaller market capitalization, it can flexibly achieve BPS growth at a faster pace and trade at a higher premium.

SOL DAT Company: A company that is creating a DAT trend in the United States, drawing on the strategies of a well-known software company, but applied to Solana. Solana has the following advantages as a substitute for BTC: (a) shorter maturity period, potentially greater room for growth; (b) higher volatility than BTC, which helps achieve higher returns; (c) staking rewards can promote the growth of each SOL share; (d) currently few substitutes, with more untapped demand.

ETH DAT Company: The first Ethereum digital asset vault company in the United States, supported by a leading Ethereum software company.

Our support for these companies and their successful response in the market have driven the emergence of a series of subsequent projects, and we continue to actively evaluate many such projects.