Singapore-based Lion Group Holdings has secured a $600 million credit facility to build a crypto reserve of next-gen layer-1 tokens. The firm disclosed its move in a press release today, noting that it secured the facility from ATW Partners.

According to the company, it wants to accumulate Solana (SOL), Sui (SUI), and Hyperliquid (HYPE) tokens for its crypto reserve. However, it chooses HYPE as the primary reserve asset, noting that the Layer-1 decentralized perps exchange aligns with its derivatives business.

The company CEO, Wilson Wang, stated making HYPE a reserve asset allows the company to venture into decentralized derivatives trading and shows its strong belief in on-chain as the future of finance. Wang said:

“We view protocols like HYPE, with decentralized sequencing, as foundational to building scalable DeFi systems.”

The CEO also noted that the company may allocate part of its reserves to Solana and Sui because these two networks are “execution-first protocols.” He explained that Solana leads in consumer-facing decentralized applications while Sui boasts of scalability and recently got the backing of World Liberty Financial.

The firm plans to use a stake in the SOL and SUI tokens it purchases and use Bitgo as the custodian. This move will allow it to increase its reserve of these altcoins without buying more.

Following the announcement, the company’s stock on Nasdaq, LGHL, soared more than 26%, going over $5. However, it has now dropped to $2.83, showing that the hype around creating a crypto treasury was insufficient to sustain its rise.

Still, the company plans to have a secondary listing of its stock on other exchanges to boost its reach. It is considering the Tokyo Stock Exchange (TSE) and the Singapore Exchange (SGX), noting that it could become the first company in Asia with a HYPE reserve.

LGHL’s microcap status raises questions about its funding capacity

Meanwhile, the news of a company spending hundreds of millions of dollars on a HYPE reserve has generated positive sentiments in the crypto community, especially around HYPE tokens.

Although the token has been slightly down in the last 24 hours, it remains one of the best performers this year, with a 47.44% increase year-to-date, as it trades close to $39. News of potential accumulation likely contributed to its strong performance today.

However, some users in the crypto community have questioned Lion Group’s financial capacity, noting that this is a company with a market cap of less than $2 million. Its financial performance is not that strong either, with annual revenue for 2023 just at $21.1 million, while its net loss for that year was $27.45 million.

Given that financial position, the idea of Lion Group spending more than 300 times its value on acquiring altcoins. Nevertheless, a breakdown of the credit facility shows that the $600 million is a series of convertible notes attracting interest of 8% or 12%, depending on whether it is paid in shares or cash.

Only the first $10.56 million is guaranteed out of the total facility, and the company is expected to spend at least 75% of it on HYPE tokens. Subsequent withdrawals from the facility are in $4.45 million increments that must be at least 30 days apart and will depend on the company meeting certain conditions.

Such conditions include its share trading volume over $500,000 for each trading day and volume-weighted average price (VWAP) higher than the conversion price for the convertible notes.

Most observers believe the deal is not as credible as it sounds, especially given the terms, while noting that ATW Partners is already a major creditor for Lion Group Holdings.

Concerns about corporate crypto treasuries grow

Meanwhile, the deal highlights the broad interest among corporations in creating a crypto treasury. While most companies have simply copied the Strategy playbook and opted for Bitcoin treasuries, others are exploring altcoins, with at least four public companies now having SOL treasuries.

However, some market experts have raised concerns about the proliferation of crypto treasury companies, with many leveraging debt to generate capital.

SkyBridge Capital founder Anthony Scaramucci believes that this approach, which Strategy popularized, could come back to hurt BTC if the tide should suddenly turns. He is alone in this view, as Swiss crypto bank Sygnum has also voiced similar concerns.

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