Why are most financial DATs trading at a discount?

Author: @Matt_Hougan

Compiled by: Peggy, BlockBeats

Editor’s Note: Digital Asset Treasury (DAT) companies were once seen as a "moat" in the crypto market, but as Bitcoin retreated to the $80,000 range, the flywheel effect has stalled, and the market has entered a period of adjustment.

Recently, there has been frequent controversy in the market regarding the DAT model. Supporters argue that DAT serves as a bridge between crypto and TradFi, promoting ecosystem development, with leading companies like MSTR maintaining close to 1.03 mNAV, proving that quality entities possess resilience and are expected to achieve premiums through strategies like debt, lending, and derivatives.

Opponents warn that DAT is essentially leveraged speculation, easily falling into a "death spiral" during bear markets, with the VC model exacerbating selling pressure, and altcoin DATs concentrating risk. Regulatory uncertainties (such as MSCI exclusions and the Hong Kong Stock Exchange rejecting transformation plans) further amplify discounts, leading to increased market fragmentation, with long-tail DATs averaging declines of over 70%.

On November 21, crypto analyst Taiki and Multicoin Capital co-founder Kyle Samani engaged in a direct confrontation on the X platform regarding "Will DAT sell spot assets to buy back shares?"

Taiki Maeda's highly interactive post pointedly stated: "DAT turns decentralized pure assets into a VC bundling scam, creating selling pressure." This viewpoint reinforced the narratives of "death spiral" and "centralization risk," particularly impacting altcoin DATs more severely.

Kyle emphasized that there is almost no evidence that DAT would sell spot assets to buy back shares, arguing that such behavior is not a systemic issue but rather isolated cases or misunderstandings, suggesting that DAT focuses more on long-term value growth. Taiki countered that when mNAV falls below 1, DAT is easily forced to sell assets to buy back shares, forming a "death spiral," and questioned Kyle using the example of $FWDI's current mNAV < 1, pointing out precedents (like ETHZILLA and small DATs) that sold treasury assets for buybacks during bear markets.

This sharp debate, combined with community agreement on DAT being "meaningless," further amplified market concerns about the structural risks of DAT.

This article, based on the core valuation logic of DAT (mNAV, discount, and premium factors), combined with the latest debate, explores the sustainability of the DAT model, regulatory challenges, and the trend of polarization, helping you see which companies may achieve premiums and which are destined for discounts amidst the controversy.

Here is the original text:

I've seen a lot of poor analysis regarding DAT (Digital Asset Treasury). In particular, many people have very unreliable views on whether they should trade above, below, or at the value of their held assets (the so-called "mNAV").

Here are my thoughts.

When evaluating a DAT, the first question to ask yourself is: If this company had a fixed lifecycle, how much would it be worth?

If you consider a very short time frame, the value of this approach becomes apparent. For example: Suppose you have a Bitcoin DAT that announces it will close this afternoon and distribute Bitcoin to investors. Its trading price would then equal the value of its Bitcoin (i.e., mNAV of 1.0).

Now extend the time frame. What if it announces it will close in a year? At this point, you must consider all the reasons that might cause the DAT's trading price to be above or below its Bitcoin value. Let's review these factors.

Three Reasons for Discounted Trading

The three main reasons DAT trades at a discount are: lack of liquidity, operational expenses, and risk.

1. Lack of liquidity: You wouldn't want to pay full price today for Bitcoin that you won't receive until a year from now. But you would be willing to pay some discounted price. Would you ask for a 5% discount? Or 10%? If it were me, I would definitely choose 10%. This would lower the value of our DAT.

2. Operational expenses: Every dollar of operational spending or executive compensation ultimately comes out of your pocket. Suppose our 12-month DAT holds Bitcoin worth $100 per share but pays executives an amount equivalent to $10 per share each year. Then you would definitely demand a 10% discount on the net asset value (NAV).

3. Risk: Companies can always make mistakes in certain aspects. You also need to factor this risk into the price.

Four Ways for Premium Trading

Now let's look at why DAT might trade at a premium. In the U.S., there is only one reason: if it can increase the number of crypto assets per share.

I've seen four main ways DAT tries to achieve this.

1. Issuing debt: If you issue debt in dollars and purchase crypto assets, and the crypto assets appreciate relative to the dollar, you can repay the debt and increase the number of crypto assets per share. This is often the strategy to increase its per-share BTC. (If Bitcoin's price falls, the opposite is true.)

2. Lending crypto assets: If you lend out crypto assets and receive interest payments, you can increase the number of crypto assets per share.

3. Using derivatives: If you hold crypto assets and engage in actions like selling call options, you can earn income and accumulate more assets this way. Of course, this also means you might forfeit upside potential.

4. Acquiring crypto assets at a discount: DAT may acquire crypto assets at a discount through various means, such as:

• Purchasing locked assets from foundations to sell specific assets without disturbing the market;
• Acquiring another DAT that trades at a discount;
• Buying back its own shares if its stock trades at a discount;
• Acquiring a cash-flow-generating business and using that cash flow to purchase crypto assets.

A challenge faced by a DAT is that the reasons causing it to trade at a discount are mostly certain, while the reasons causing it to trade at a premium are mostly uncertain.

Because of this, DAT faces a high threshold: most will trade at a discount, and only a few outstanding companies will trade at a premium.

Returning to our example: If you have a Bitcoin DAT that will liquidate in 12 months, you can do the following:

(1) Calculate its operational expenses;

(2) Add a risk discount;

(3) Offset these discounts with your expectations for its ability to increase the number of Bitcoin per share.

That is its fair value!

You might think: Well, Matt, but DAT doesn't have a fixed lifecycle. They can continue indefinitely!

This indeed complicates the issue. But in reality, it means everything will be magnified. Expenses and risks will compound over time, so they must be closely monitored. Similarly, DATs that can continuously increase the number of crypto assets per share may be very valuable.

When I review how DAT increases the number of crypto assets per share, I notice a significant characteristic: each method benefits from scale.

Larger DATs find it easier to issue debt than smaller DATs; they have more crypto assets available for lending; they can access more liquid options markets; they also have better opportunities in mergers and acquisitions and other discounted transactions.

Over the past six months, DAT prices have fluctuated almost in sync. But in the future, I believe there will be more differentiation. Some companies will perform well and trade at a premium, while more companies will perform poorly and trade at a discount. This model is a way to help you judge which type of company belongs to which category.

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