Compared to Bitcoin, Ethereum can provide companies with native yields.
Written by: Kevin
Compiled by: Luffy, Foresight News
Although the cryptocurrency community has long been keen on tokenizing assets and on-chain assets as a means to enhance accessibility, the most significant progress has actually come from the integration of cryptocurrencies with traditional securities. This trend has been perfectly reflected in the recent surge of interest in 'corporate crypto asset treasuries' in the public market.
Michael Saylor's Strategy was the first to implement this strategy, transforming his company into one valued at over $100 billion, with gains even surpassing Nvidia. We elaborated on this blueprint in our articles about Strategy. The core logic of these financial strategies is that public stock offerings can acquire lower-cost unsecured leverage, which is not accessible to ordinary traders.
Recently, attention has expanded beyond Bitcoin to areas based on Ethereum treasury strategies, such as Sharplink Gaming (SBET, led by Joseph Lubin) and BitMine (BMNR, led by Thomas Lee), which are increasingly gaining attention. But is the Ethereum treasury really rational? As we argued in our analysis of MicroStrategy, companies are essentially attempting to arbitrage the long-term compound annual growth rate (CAGR) of the underlying asset against their own capital costs. In previous articles, we outlined the logic of Ethereum's long-term compound annual growth rate: it is a scarce, programmable reserve asset that plays a foundational role in securing economic safety on-chain as more assets migrate to blockchain networks. In this article, we will explain why the Ethereum treasury has a bullish trend and provide operational advice for companies adopting this financial strategy.
Acquiring liquidity: The cornerstone of treasury companies
One of the main reasons tokens and protocols seek to create these treasury companies is to provide a pathway for tokens to access traditional financial liquidity, especially in the context of declining altcoin liquidity in the cryptocurrency market. Typically, these treasury strategies acquire liquidity to purchase more assets in three ways. Importantly, this liquidity/debt is unsecured, meaning it is non-redeemable:
Convertible bonds: raising funds by issuing debt convertible into stocks, with proceeds used to purchase more Bitcoin;
Preferred stock: raising funds by issuing preferred stocks that pay fixed annual dividends to investors;
At-the-Market Offering (ATM): selling new shares directly in the open market to raise flexible real-time funds for purchasing Bitcoin.
Why Ethereum convertible bonds are superior to Bitcoin convertible bonds
In our previous article on Strategy, we pointed out that convertible bonds provide institutional investors with two main advantages:
Coexisting downside protection and upside exposure: convertible bonds enable institutions to gain exposure to underlying assets (such as Bitcoin or Ethereum) while safeguarding the principal investment through the inherent protective features of bonds;
Volatility-driven arbitrage opportunities: hedge funds purchasing convertible bonds are often motivated not only to gain exposure but also to execute gamma trading strategies, profiting from the volatility of the underlying assets and their securities.
Among them, gamma traders (hedge funds) have now become the main participants in the convertible bond market.
Given this, Ethereum's higher historical volatility and implied volatility compared to Bitcoin become its key distinguishing features. Ethereum treasury companies reflect this higher volatility naturally in their capital structures by issuing Ethereum convertible bonds (CBs). This makes Ethereum-backed convertible bonds particularly attractive to arbitrageurs and hedge funds. The key is that this volatility also allows Ethereum treasuries to secure more favorable financing terms by selling convertible bonds at higher valuations.
Figure 1: Historical volatility comparison of Ethereum and Bitcoin Source: Artemis
For holders of convertible bonds, higher volatility increases the opportunity to profit through gamma trading strategies. In short, the higher the volatility of the underlying asset, the more profitable the gamma trading becomes, which gives Ethereum treasury's convertible bonds a clear advantage over Bitcoin treasury's convertible bonds.
Figure 2: Historical volatility comparison of BMNR and MSTR Source: Artemis
However, there is an important caveat: if Ethereum cannot maintain a long-term compound annual growth rate, the appreciation of the underlying asset may not be sufficient to support conversion before maturity. In this case, the Ethereum treasury company will face the risk of fully repaying the bonds. In contrast, the likelihood of such downside risk occurring with Bitcoin is lower, as historically, most convertible bonds under this strategy have converted into stocks.
Figure 3: Four-Year Compound Annual Growth Rate: Ethereum vs. Bitcoin. Source: Artemis
Why the issuance of Ethereum's preferred stock can provide differentiated value
Unlike convertible bonds, preferred stock issuances are designed for fixed income asset classes. While some convertible preferred stocks offer hybrid upside potential, for many institutional investors, yield remains the primary consideration. The pricing of these instruments is based on underwriting credit risk, namely whether the treasury company can reliably pay interest.
The key advantage of the Strategy approach is using at-the-market offerings (ATM) to fund these payments. Since this typically only accounts for 1%-3% of total market capitalization, the dilution effect and risk introduced are minimal. However, this model still relies on the market liquidity and volatility of Bitcoin and Strategy's underlying securities.
Ethereum adds another layer of value: native yields generated from staking, re-staking, and lending. This built-in yield provides greater certainty in paying preferred stock dividends and should theoretically lead to higher credit ratings. Unlike Bitcoin, which relies solely on price appreciation, Ethereum's return characteristics combine compound annual growth rates with native yields from the protocol layer.
Figure 4: Annualized native staking yield of Ethereum Source: Artemis
I believe one of the most striking innovations of Ethereum preferred stock is that it has the potential to become a non-directional investment tool, allowing institutional investors to participate in network security without taking on directional risks of Ethereum's price. As we emphasized in our Ethereum report, maintaining at least 67% honest validators is crucial for ensuring Ethereum's security. As more assets migrate on-chain, institutional support for Ethereum's decentralization and security becomes increasingly important.
However, many institutions may not wish to take direct long positions in Ethereum. Ethereum treasury companies can act as intermediaries, absorbing directional risks while providing institutions with fixed-income-like returns. The preferred stocks issued by SBET and BMNR are designed as on-chain fixed-income staking products for this purpose. They can bundle transaction priority rights, protocol-level incentives, and other advantages, making them more attractive to investors seeking stable returns without taking on full market risk.
Why at-the-market offerings (ATM) are more beneficial for Ethereum treasuries
For crypto treasury companies, a widely used valuation metric is mNAV (market cap to net asset value ratio). Conceptually, mNAV serves a role similar to price-to-earnings ratio (P/E): it reflects the market's pricing of future growth per share of assets.
Ethereum treasuries should inherently enjoy a higher mNAV premium, thanks to Ethereum's native yield mechanism. These activities can generate recurring 'income' or increase the value of each Ethereum share without requiring incremental capital. In contrast, Bitcoin treasury companies must rely on synthetic yield strategies (such as issuing convertible bonds or preferred stocks). Without these institutional products, it is challenging to justify yields when the market premium of Bitcoin treasuries approaches net asset value.
Most importantly, mNAV is reflexive: higher mNAV enables treasury companies to raise funds more effectively through at-the-market offerings. They issue shares at a premium and use the proceeds to purchase more underlying assets, thereby increasing the value of each asset share and reinforcing this cycle. The higher the mNAV, the more value can be captured, making at-the-market offerings particularly effective for Ethereum treasury companies.
The ability to acquire capital is another key factor. Companies with deeper liquidity and stronger financing capabilities naturally enjoy higher mNAV, while companies with limited market access often trade at a discount. Therefore, mNAV typically reflects liquidity premiums—the market's confidence in the company's ability to effectively acquire more liquidity.
How to filter treasury companies from first principles
A useful mental model is to view market price offerings as a way to raise capital from retail investors, while convertible bonds and preferred stocks are typically designed for institutional investors. Therefore, the key to a successful market price offering strategy is to build a strong retail base, which often depends on whether there is a credible and charismatic leader and ongoing transparency around the strategy to convince retail investors of the long-term vision. In contrast, successfully issuing convertible bonds and preferred stocks requires strong institutional sales channels and relationships with capital markets departments. Based on this logic, I believe SBET is a stronger retail-driven company, primarily due to Joe Lubin's leadership and the team's consistent transparency in accumulating Ethereum per share. At the same time, BMNR, under Tom Lee's leadership, seems more capable of leveraging institutional liquidity due to its close ties with traditional finance.
Why Ethereum treasuries are important to the ecosystem and competitive landscape
One of the biggest challenges facing Ethereum is the increasing centralization of validators and staked Ethereum, primarily reflected in liquid staking protocols like Lido and centralized exchanges like Coinbase. Ethereum treasury companies help balance this trend and promote validator decentralization. To support long-term resilience, these companies should diversify their Ethereum across multiple staking providers and become validators themselves where possible.
Figure 5: Staking distribution by category Source: Artemis
In this context, I believe the competitive landscape of Ethereum treasuries will differ significantly from Bitcoin treasury companies. In the Bitcoin ecosystem, the market has evolved into a winner-takes-all scenario, where the amount of Bitcoin held by Strategy is more than ten times that of the second-largest holder. Thanks to first-mover advantage and strong narrative control, it also dominates the convertible bond and preferred stock markets.
In contrast, Ethereum treasury strategies are just beginning. No single entity has established dominance; instead, multiple Ethereum treasuries are being launched in parallel. This lack of first-mover advantage is not only healthier for the network but also fosters a more competitive and accelerated market environment. Given that the Ethereum holdings of the main participants are relatively close, I believe a dual duopoly pattern of SBET and BMNR may emerge.
Figure 6: Holdings of Ethereum treasury companies Source: strategicethreserve.xyz
Valuation: A combination of Strategy and Lido
Broadly speaking, the Ethereum treasury model can be seen as a fusion of Strategy and Lido, specifically designed for traditional finance. Unlike Lido, Ethereum treasury companies have the potential to capture a larger share of asset appreciation because they hold the underlying assets, making this model far superior in terms of value accumulation.
From a broad valuation perspective: Lido currently manages about 30% of total staked Ethereum, with an implied valuation exceeding $30 billion. We believe that over a market cycle (4 years), the total scale of SBET and BMNR could surpass Lido, thanks to the speed, depth, and reflexivity of traditional financial capital flows—as demonstrated by Strategy's growth strategy.
For reference: Bitcoin's market cap is $2.47 trillion, while Ethereum's market cap is $428 billion (equivalent to 17%-20% of Bitcoin). If SBET and BMNR's scale reaches about 20% of Strategy's $120 billion valuation, this implies a long-term value of around $24 billion. Currently, their total valuation is slightly below $8 billion, indicating that there is still significant growth potential as Ethereum treasuries mature.
Conclusion
The integration of cryptocurrency and traditional finance through digital asset treasuries represents a significant transformation, and Ethereum treasuries are now becoming a powerful force. Ethereum's unique advantages give Ethereum treasury companies unique growth potential. Their potential to promote validator decentralization and foster competition further distinguishes them from Bitcoin treasury companies. Combining Strategy's capital efficiency with Ethereum's built-in yields will unlock tremendous value and drive on-chain economies deeper into traditional finance. Rapid expansion and growing institutional interest indicate that this will have transformative effects on cryptocurrency and capital markets in the coming years.
