How Crypto Treasury Companies Are Juicing Yields in a Crowded Field

Digital asset treasury companies are one of the major forces driving the current market cycle. I was curious to investigate how these companies are evolving their strategies given how many new entrants are crowding the field and how competitive this sector is becoming. 

Through my research, it is becoming clearer to me that these DATs will remain a part of the market for years to come, but only the strongest will survive in the long term. 

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How Crypto Treasury Companies Are Juicing Yields in a Crowded Field

Crypto’s latest trend is now fiercely competitive, pushing companies to differentiate themselves by creatively generating yield. But the risks they take could someday backfire.

Every crypto hype cycle has at least one major craze, and this year it appears to be digital asset treasury companies (DATs). These publicly traded entities — which accumulate digital assets as a core balance sheet strategy — have raised almost $22 billion of capital so far this year, according to Blockworks Research, transforming corporate treasuries into leveraged bets on crypto.

Starting in 2019 with MicroStrategy as the first public company to financially engineer its balance sheet to accumulate more Bitcoin, this strategy has been adopted by copycats also purchasing Bitcoin, and others focusing on altcoins such as Ethereum, Solana, Hyperliquid, and Toncoin. 

Yet, as the sector matures, we're witnessing a shift toward more sophisticated strategies that may signal market saturation. No longer content with simple hodling, DATs are borrowing from traditional finance (TradFi) playbooks while venturing into decentralized finance (DeFi) to pursue higher yields. In order to remain competitive and justify public valuations that exceed their net asset value, new and existing DATs are putting their treasury assets to work. 

This evolution reflects a crowded landscape where differentiation is key, but it may also introduce systemic risks for the entire crypto market. On a macro level, DATs could amplify crypto volatility if major players are forced to unwind positions amid downturns, potentially echoing broader contagion seen in past cycles. This combo could be an explosive force driving the crypto markets higher this cycle, but could their aggressive strategies sow the seeds of the next downturn? 

Farming in DeFi

With ~140 DATs now tracked for Bitcoin treasuries alone, competition in the DAT space is intensifying. Companies must differentiate their strategies to stand out amid the multitude of new vehicles launching. New DATs coming to market are increasingly incorporating multiple layers of yield generation atop standard staking, leveraging liquid staking, restaking, and DeFi protocols to increase returns. These measures have encouraged DATs to focus on yield generation over speculative holding.

Vanilla staking provides the foundation, offering 3-8% APY on proof-of-stake networks such as Ethereum and Solana through network validation. For instance, SharpLink Gaming (SBET) holds 797,000 ETH, with over 95% staked since June, generating approximately 3% APY and contributing to a 400% increase in share price.

Bitmine, the largest ETH-focused treasury company with 1.8 million ETH valued at approximately $8 billion, is exploring staking, but has kept its strategy confidential to date. Bitmine Chairman Tom Lee told Unchained, “We are taking it slow. The most important thing is making sure our staking is GAAP compliant and compliant with U.S. regulations.” 

ETH Strategy and BTCS are using liquid staking to enhance liquidity by issuing tokens like Lido's stETH and Rocketpool’s rETH, which yield around 2.7% or 2.4% APR, respectively, and can be traded or integrated into over 90 DeFi platforms for additional returns via lending or liquidity mining. 

ETH Strategy and SBET also claimed they are using restaking and liquid restaking platforms to generate additional yield. These platforms, such as EigenLayer, Ether Fi, and Renzo, secure actively validated services (AVSs) and allow depositors to engage in more exotic DeFi strategies to earn higher yields reaching 6-10% APY. These strategies, however, create additional risks that may lead to the loss of treasury assets. 

DeFi Development Corp (DFDV), the first DAT to pursue a Solana treasury strategy, optimizes for SOL per share (SPS). As DFDV CEO Joseph Onorati states, "If you’re buying Solana, you should be building Solana. Any DAT worth owning should support the ecosystem it’s built on." At DFDV, SPS serves as the core metric, expanded via validator operations and DeFi integrations that compound holdings and fortify the Solana ecosystem. 

One particular strategy DFDV engages in is looped staking, in which they mint a liquid staking token (LST), borrow SOL against the LST on Kamino, stake the borrowed SOL, and repeat this process to earn an effective yield of around 12%. Onorati further notes, "We believe DATs have an obligation to strengthen the blockchain. If the ecosystem thrives, we thrive, and that lets us control our own destiny."

Farming in TradFi

Other DATs are turning to TradFi in their search for yield and are leveraging innovative financing mechanisms to tap into traditional capital markets. 

Initially, DATs like MicroStrategy and Metaplanet issued convertible notes and at-the-market (ATM) offerings, creating reflexive cycles where appreciating crypto values boost equity valuations, which in turn enable additional capital raises to purchase more crypto. 

MicroStrategy has since shifted its strategy focusing on preferred equity issuances to fund Bitcoin purchases. This year, Metaplanet began using the Bitcoin on its balance sheet to generate income via options, selling covered call options on its holdings to earn premiums. 

A Replay of 2022?

According to Capriole Investments, approximately 22% of the 156 Bitcoin DATs trade at a multiple to net asset value (mNAV) below 1, up since January, when the percentage was below 15%. When a bear market hits, the percentage of DATs with mNAV below 1 could exceed 50%. New DAT creation could screech to a halt, similar to ICO launches in 2019.

Remedial actions for those companies potentially include M&A activity, where firms trading at a premium acquire discounted counterparts, and share buybacks. For instance, SBET's $1.5 billion repurchase authorization announcement on Aug. 22 targets opportunities when its shares trade below NAV. Speculation persists that ETH sales may finance these buybacks, effectively realizing gains on their appreciated ETH holdings. 

Similarly, BitMine's $1 billion repurchase aligns with this strategy. As Chairman Tom Lee explains, "In our road to achieving 'the alchemy of 5%' of ETH, there may be times when the best expected return of our capital is to acquire our own shares." 

While these initiatives involve active treasury management to restore premiums, a broader contagion scenario could unfold depending on DATs' balance sheet health. If many have used debt to fund crypto acquisitions, such as convertible notes that require repayment, they may be compelled to sell underlying assets like ETH or BTC during price dips, exacerbating downward pressure and triggering forced liquidations among those with weaker balance sheets. 

Compounding this, if numerous DATs rely on the same restaking strategies, a protocol hack or exploit could lead to widespread treasury asset losses, amplifying sell-offs and potentially sparking systemic contagion similar to past crypto winters.

DATs evolution from simple holding to more complex yield generation, incorporating layered staking, restaking, and DeFi, demonstrates adaptation to a saturated environment. Historically, bear markets have been instigated by a build up of systemic leverage. Similar to how liquidations of centralized lending desks and trading platforms such as Celsius, BlockFi, and FTX marked the bear market bottom in 2022, DATs that engage in risky asset management and do not properly manage their balance sheets may be forced sellers, which could usher in the next prolonged bear market.

The winning DATs will be those that sustainably generate more assets per share through innovative yield strategies, making them compelling to investors who might otherwise opt for simpler alternatives like spot Bitcoin or Ethereum ETFs.

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