Written by: Kevin, Co-Investment Director at Penn Blockchain
Compiled by: Planet Daily Azuma (@azuma_eth)
Despite the long-standing enthusiasm in the crypto community for bringing traditional assets onto the chain in tokenized form, the most significant recent advancements actually stem from the reverse integration of crypto assets into traditional securities. The recent public market's fervor for stocks resembling 'crypto asset treasuries' perfectly illustrates this trend.
Michael Saylor was the first to adopt this strategy through MicroStrategy (MSTR), pushing its market cap above $100 billion, with growth even surpassing Nvidia during the same period. We conducted a detailed analysis in our special report on MicroStrategy (an excellent learning resource for newcomers in the treasury field). The core logic of such treasury strategies is that public companies can obtain low-cost, unsecured leverage that ordinary traders cannot reach.
Recently, the market's focus has shifted from BTC treasuries to ETH treasuries, such as Sharplink Gaming (SBET) led by Joseph Lubin and BitMine (BMNR) headed by Thomas Lee.
But is the ETH treasury truly reasonable? As we argued in the MicroStrategy analysis report, treasury companies are essentially trying to arbitrage the difference between the long-term compound annual growth rate (CAGR) of the underlying asset and the cost of capital. In earlier articles, we outlined our views on ETH's long-term annual compound growth rate: as a programmable scarce reserve asset, ETH plays a foundational role in maintaining on-chain economic security as more assets migrate to the blockchain network. This article will explain the bullish logic for ETH treasuries in the broader direction and provide operational recommendations for companies adopting this strategy.
Liquidity Acquisition: The cornerstone of treasury companies
One of the primary reasons tokens and protocols seek to create these treasury-like companies is to open pathways for tokens to obtain traditional financial (TradFi) liquidity—especially against the backdrop of declining liquidity for altcoins. These treasury companies mainly acquire liquidity through three methods to increase their assets. It is noteworthy that this liquidity/debt is unsecured, meaning it cannot be redeemed early.
Convertible Bonds: Raising funds through issuing bonds that can be converted into stock, with proceeds used to purchase more cryptocurrency;
Preferred Equity: Raising funds through issuing preferred shares that pay fixed annual dividends;
Market Issuance (ATM): Directly selling new shares on the open market to obtain flexible real-time funding for purchasing cryptocurrency.
Advantages of ETH Convertible Bonds
In our earlier research on MicroStrategy, we pointed out that convertible bonds offer two major conveniences for institutional investors:
Downside protection and upside opportunities: Allowing institutions to gain exposure to underlying assets (such as BTC or ETH) under the inherent protective characteristics of bonds;
Volatility-driven arbitrage opportunities: Hedge funds often profit from the volatility of the underlying assets and their securities through gamma trading strategies.
Among them, gamma traders (hedge funds) have become the dominant force in the convertible bond market. Compared to BTC, ETH has higher historical volatility and implied volatility. The convertible bonds (CB) issued by ETH treasury companies can naturally reflect this high volatility in their capital structure, making them more attractive to arbitrageurs and hedge funds. More importantly, this volatility enables ETH treasury companies to issue convertible bonds at higher valuations, obtaining more favorable financing conditions.
Odaily Note: Comparison of historical volatility between ETH and BTC.
For convertible bondholders, higher volatility means increased opportunities to profit through gamma strategies. In short, the greater the underlying asset's volatility, the more substantial the gamma trading profits, making ETH treasury's convertible bonds more advantageous than BTC treasury's.
Odaily Note: Comparison of historical volatility between SBET, BMNR, and MSTR.
However, it is important to note a key premise—if ETH cannot maintain long-term annual compound growth, the appreciation of the underlying asset may not be sufficient to meet conversion conditions before maturity. At that point, treasury companies will face full repayment risk. In contrast, BTC, with its more established long-term performance, has a lower probability of such situations occurring with its convertible bonds—historical data shows that most convertible bonds under this strategy eventually achieve conversion.
Odaily Note: Comparison of four-year CAGR between ETH and BTC.
The special value of ETH preferred shares
Unlike convertible bonds, preferred shares are designed for fixed-income investors. While some convertible preferred shares have mixed upside potential, yield remains the primary consideration for most institutional investors. The pricing of these instruments is based on credit risk—whether the treasury company can reliably pay interest.
The key advantage of MicroStrategy's strategy is utilizing ATM issuance to pay interest. Since this typically only accounts for 1-3% of market value, the dilution risk is minimal, but this model still relies on the market liquidity and volatility of BTC and MicroStrategy’s underlying securities.
ETH can generate native yields through staking, re-staking, and lending, providing greater certainty for preferred share interest payments, theoretically obtaining a higher credit rating. Unlike BTC, which relies solely on price appreciation, ETH's returns combine long-term annual compound growth expectations with native yields from the protocol layer.
Odaily Note: Annualized yield situation of ETH native staking.
My innovative proposal is that ETH preferred shares could serve as a non-directional investment tool, allowing institutions to participate in network security maintenance without bearing ETH price risk. As emphasized in our ETH report, maintaining at least 67% honest validators is crucial for network security. As more assets go on-chain, institutional support for Ethereum's decentralization and security becomes increasingly important.
Many institutions may be unwilling to go long on ETH directly, but ETH treasury companies can act as intermediaries—absorbing directional risk while providing institutions with returns similar to fixed income. The on-chain preferred shares issued by SBET and BMNR are designed as fixed-income staking products, which can be made more attractive to investors seeking stable returns without wanting to bear all market risks through bundling incentive agreements.
Special advantages of ATM issuance for ETH treasuries
The key valuation metric for treasury companies, mNAV (Market Value to Net Asset Value Ratio), is conceptually similar to the Price-Earnings Ratio, reflecting the market's pricing of future growth per share of assets. The ETH treasury naturally enjoys a higher mNAV premium due to its native yield mechanism—these activities can generate ongoing 'earnings' or increase the corresponding ETH amount per share without additional capital. In contrast, BTC treasury companies must rely on synthetic yield strategies (such as issuing convertible bonds or preferred shares), making it difficult to justify any earnings when the market premium approaches NAV.
Moreover, mNAV is reflexive—higher mNAV allows treasury companies to raise capital more value-consciously through ATM issuance. They issue stock at a premium and increase their underlying assets, enhancing the value per share, creating a positive cycle. The higher the mNAV, the stronger the value capture ability, making ATM issuance particularly effective for ETH treasury companies.
Capital acquisition is another key factor. Companies with deeper liquidity and broader financing capabilities naturally achieve higher mNAV, while those with limited market access tend to trade at a discount. Thus, mNAV often reflects liquidity premiums—showing the market's confidence in the company's ability to effectively acquire more liquidity.
Filtering treasury companies based on first principles
ATM issuance can be seen as financing from retail investors, while convertible bonds and preferred shares are typically aimed at institutional investors. Therefore, a successful ATM strategy hinges on establishing a strong retail base, which often requires credible and charismatic spokespeople, as well as continuous transparent strategic disclosures to win long-term trust from retail investors. In contrast, convertible bonds and preferred shares require robust institutional sales channels and relationships with capital markets departments. In this regard, I believe SBET has a stronger retail-driven advantage (benefiting from Joe Lubin's leadership and the team's ongoing transparency in increasing per-share ETH), while BMNR, due to Tom Lee's deep connections in traditional finance, is more likely to access institutional liquidity.
The ecological significance and competitive landscape of ETH treasuries
One of the biggest challenges facing Ethereum is the increasing concentration of validators and staked ETH (primarily in liquidity staking protocols like Lido and centralized exchanges like Coinbase). ETH treasuries help counter this trend and promote validator decentralization. To enhance long-term resilience, these companies should diversify their ETH across multiple staking service providers and operate their own validator nodes where possible.
Odaily Note: Distribution of Ethereum staking categories.
In this context, I believe the competitive landscape of ETH treasury companies will be fundamentally different from that of BTC treasury companies. The Bitcoin ecosystem has formed a winner-takes-all scenario (MicroStrategy's holdings are more than 10 times that of the second-largest corporate holder), dominating the convertible bond and preferred share market through first-mover advantage and strong narrative control. In contrast, ETH treasuries are starting from scratch, without a single dominant entity, with multiple projects developing in parallel. This lack of first-mover advantage not only makes the network healthier but also fosters a more competitive and accelerated development environment. Given that the ETH holdings of leading companies are similar, SBET and BMNR are likely to form a duopoly.
Odaily Note: Comparison of ETH treasury company holdings.
Valuation Framework: A combination of MicroStrategy and Lido
Broadly speaking, the ETH treasury model can be seen as a fusion of MicroStrategy and Lido specifically designed for traditional finance. Unlike Lido, ETH treasury companies can capture a larger proportion of asset appreciation due to holding underlying assets, making them far superior in value accumulation.
Here is a rough valuation reference: Lido currently manages about 30% of staked ETH, with an implied valuation exceeding $30 billion. We believe that within a market cycle (4 years), SBET and BMNR could potentially exceed Lido in total scale, driven by the speed, depth, and reflexivity of traditional financial capital flows (as demonstrated by MicroStrategy's growth strategy).
To add some background data, Bitcoin's market cap is $2.47 trillion, while Ethereum's is $428 billion (accounting for 17-20% of Bitcoin). If SBET and BMNR reach 20% of MicroStrategy's $120 billion valuation, the long-term value would be approximately $24 billion. Currently, their combined valuation is less than $8 billion, indicating significant growth potential as the ETH treasury matures.
Conclusion
The emergence and development of digital asset treasuries mark a significant evolution in the further integration of the cryptocurrency market with traditional finance, with ETH treasuries becoming a powerful new force. Ethereum's unique advantages (including higher volatility of convertible bonds and native yields of preferred shares) create differentiated growth opportunities for treasury companies, further promoting validator decentralization and stimulating competition, distinguishing them from the BTC treasury bond ecosystem.
The combination of MicroStrategy's capital efficiency and ETH's embedded yields can unleash tremendous value and drive the on-chain economy deeper into traditional finance. Rapid expansion and growing institutional interest indicate a transformative impact on cryptocurrency and capital markets in the coming years.
