This DAT Claims It Raised $401 Million. But the Fresh Capital Is Only $13.7M

I have been writing for years that investors need to DYOR before investing in anything, let alone a token, project, or company in crypto. Headlines, especially when they tout massive fundraises for little-known projects, should not necessarily be trusted.

Take a look at this latest example to see why.

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This DAT Claims It Raised $401 Million. But the Fresh Capital Is Only $13.7M

A digital asset treasury touting a $401 million raise for AI blockchain Zero Gravity actually brought in far less — a red flag for investors.

On Sept. 19, Flora Growth Corp. (NASDAQ: FLGC) announced a $401 million raise to launch the first digital asset treasury company focused on 0G, the native token of the AI-focused Zero Gravity blockchain, and rename itself as ZeroStack. 

In an investor presentation obtained by Unchained, the company pitched itself as the “MSTR for the AI era.” 

But there is just one problem. It appears that the company only brought in 3% of that money from new investors. A close reading of the 8-K filed with the Securities and Exchange Commission (SEC) on the same day provides the breakdown:

• The only new “cash” brought in was $13.66 million in a private placement to investors such as Dao5, Abstract ventures, Dispersion Capital, Blockchain Builders Fund, and Salt.

• Another DAT, DeFi Development Corporation (DFDV), contributed $22.88 million worth of recycled Solana tokens via a private placement which pays an 8% coupon and has a convertibility feature. 

• Zero Gravity Labs Inc., the for-profit development firm behind the Zero Gravity blockchain, gave an in-kind private placement of $150 million worth of 0G.

• Zero Gravity Labs also gave 8,546,955 pre-funded warrants (priced at $25.19 each) payable in 0G tokens at a mutually agreed upon price of $3 per token that on paper would be worth $215.3 million. 

• A separate purchase agreement filed with the SEC does not name the warrant purchaser, but the investor presentation indicates that the project’s founders agreed to supply ZeroStack with $300 million worth of tokens, or 10% of the total supply of one billion tokens, assuming a token price of $3.

Even in the world of DATs, which are becoming increasingly opaque and complicated, multiple experts said that this particular company raised unprecedented red flags. Said one approached investor who declined to be identified in an interview, “This one is the ultimate grift.”

The Two Biggest Red Flags

A Liquidity Loophole

As DATs become more saturated, entrepreneurs are increasingly looking at long-tail assets for opportunity. One DAT, called Interactive Strength (TRNR), even focuses on another AI-token, FET. But what is unique about ZeroStack is that it is launching almost concurrently with the blockchain itself. Zero Gravity’s mainnet only went live on Sept. 21, two days after the DAT funding announcement was released. In fact, Unchained was unable to identify any other DAT that was launched before its accompanying blockchain.

Why is this dangerous for investors? Two reasons.

First, younger projects are inherently more risky, especially when it comes to crypto. But second, and most importantly, this arrangement gives the blockchain’s founders who “invested” 0G tokens into ZeroStack an early opportunity for liquidity that may create questions about their long-term alignment with the project.  

Much like stock options in a private company, founding token allotments are usually locked and vested over several years. This process serves the dual purpose of keeping key teams and members engaged over longer periods of time and limiting token supply to support the price. 

A DAT like this that lets insiders exchange “locked” tokens for liquid equity is a loophole against the spirit of lockups. “Normally what founders do is they vest over four years, right? One year cliff followed by a three year monthly vest,” said the investor. “The scam here is that you put it into this DAT, you pull [liquidity] forward, and you can sell public shares after you register.” Said another industry expert, “If you're basically swapping that for equity that you can then sell once the registration statement goes effective, are you getting around these vesting rules?”

A third added on, “Getting instant liquidity for something that was going to take several years is a major, major issue right now with the industry.”

Why $3?

Another key question is why the 0G tokens invested in the DAT were worth $3 apiece. The SEC filing reads, “The Investor acknowledges and agrees that the Fair Market Value of each Token will be deemed to be US$3.00 in accordance with the valuation mutually agreed upon by the Company and the Investors.” Given the 1 billion supply of tokens, that price gave the project a $3 billion valuation before it even went live. Even in the frothy world of AI, that is seen as excessive by industry experts. “They agreed to basically give $3 worth of value for each 0G token before the token had even really launched and gone live. How they came up with any sort of real value, I just have no idea,” said one.

According to an executive at a crypto trading firm, trading of the token at launch, which occurred on crypto exchanges Binance and Bitget, was smooth and free from any overt signs of price manipulation. “This looked like a decent launch on the exchange because the market got back within a reasonable amount of time to a level very close to being in line with where it went live,” said the executive.

However, since trading began on Sept. 23, when it actually debuted at $5.00, the price has been stuck in a downward pattern. As of this writing it is $2.80 on Binance, and is down 43.28% since launch. It also averaged a little over $100,000 in daily trading volume. FLGC is down 32.05% during this time period.

What Comes Next

The pain might not be over for ZeroStack either. Friday officially marked the close of the fundraising period, where they only raised $13.67 million, or perhaps a little over $35 million if one counts the sol from DeFi Development Corp. out of a target raise of $100 million (see investor deck above). 

Next will come formalizing this new business arrangement and then registering the shares sold via the PIPE and other placement programs for sale at the SEC, likely by filing another form called an S-3. Once that happens, the investors will be free to dump these shares on the market.

If history is any guide, the market won’t react well. PIPE investors in earlier DATs like Upexi (UPXI), Sharplink (SBET), and Bitmine Immersion (BMNR) caused the price of those stocks to crash at least 40%. ZeroStack investors may look to run for the exits if the price of the token, or stock, continues to fall. 

It is also worth noting that neither the investor presentation obtained by Unchained or SEC filings mention anything about share lockups for founders or key executives. 

Representatives for ZeroStack and Zero Gravity Labs did not respond to Unchained’s requests for comment.

The heated conversation between Vinny Lingham and Ram Ahluwalia about stocks vs. gold as investments on last week’s Bits + Bips will get its own debate! Tune in this Thursday for a livestreamed debate, moderated by Steven Ehrlich, featuring Ram and Vinny.

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