Layer One: AVAT CEO Bart Smith on the next major growth phase for crypto

Welcome to Layer One: the newsletter and podcast on the intersection of crypto and the real world. Hosted by The Block's Kelvin Sparks and John Wu, President of Ava Labs, Layer One brings you inside the institutional conversations driving blockchain forward.

In our upcoming podcast episode, we'll be joined by Bart Smith, CEO of Avalanche Treasury Company, to discuss institutional investment vehicles, onchain AI, and his firm's plan to enrich the AVAX ecosystem.

In this week's newsletter, we're revisiting the DAT question to see how crypto treasury firms are weathering what's proven to be a challenging year for crypto.

Strategy’s woes stress test the DAT thesis, with mixed fortunes across other major L1 treasuries

Last month, the Avalanche Treasury Co. (AVAT) went public on the Nasdaq, completing a $675 million merger. This AVAX digital asset treasury company is the second of its kind, following in the footsteps of Anthony Scarramucci-backed Avax One, which went live last year. The merger deal included a reported $460 million in treasury funding, as well as a $200 million discounted token purchase from the Avalanche Foundation.

This debut comes during what has proven to be a turbulent period for treasury firms; despite continued buying activity, sustained bearishness in the underlying assets has forced a major stress test of the DAT business model. But is there a genuine cause for concern, or is the market response just a knee-jerk reaction?

Last December, we covered the mass proliferation of these treasury companies, and how some industry insiders worry that the unwinding of a major DAT could send shockwaves through the markets. Six months on, some believe they've already felt the first tremors of that quake.

At the epicentre is the largest bitcoin DAT, Michael Saylor's Strategy (formerly MicroStrategy), which currently holds over 4% of the total supply (nearly 850,000 BTC). With bitcoin breaking to new two-year lows multiple times in the past month, the risks of the company's leveraged, debt-financed model are back under the magnifying glass.

And the figures for June do invite concern. Strategy's unrealized losses have reportedly swollen to $13 billion; its MSTR common stock closed at $84.32, down 44% for the month; its preferred stock STRC — designed to maintain a $100 par value — cratered to around $74.50.

In response, Saylor announced a new Digital Credit Capital Framework in an attempt to steady the ship. The firm has temporarily suspended new bitcoin purchases, committing instead to shoring up its cash reserves, which now sit at $2.55 billion. It also allocated $1 billion for a repurchase program aimed at bringing STRC back up to its $100 target value. One controversial provision saw the board greenlight future BTC sales for the purposes of funding these buybacks and managing cash reserves — an explicit departure from the company's past never-sell mission statement.

Analysts at both TD Cowen and Benchmark this week praised the company's strategic shift, which appears to have quieted talk of an impending "death spiral," at least temporarily. Others have been less charitable: Ripple CEO Brad Garlinghouse accused Saylor of actively harming the crypto market, stating that "financial engineering does not drive long-term value."

It remains to be seen whether Strategy's revised model can weather a prolonged crypto winter, or if it will be forced into significant BTC sales to meet its dividend obligations.

At any rate, Strategy's woes are not necessarily indicative of the entire DAT space. Although still down significantly year-to-date and mostly trading below NAV — meaning the total value of the company's shares has dropped below that of its holdings — treasury firms tied to major Layer 1 ecosystem coins have enjoyed some relief in recent weeks.

Solana DATs were among those with the best returns in June, collectively outperforming SOL itself, while HYPE treasuries are the standout success story. Hyperliquid Strategies Inc, the largest company of its kind with almost 24 million HYPE on its balance sheet, is up 130% for the year and remains one of the few DATs not underwater.

Where many of these assets benefit over bitcoin is native yield: proof-of-stake blockchains offer staking rewards, which generate operating revenue without the need to issue new shares. Models like this, which expand their scope beyond the classic accumulation flywheel, could prove more durable if a deeper crypto winter were to set in.

Podcast Recap: AVAT CEO Bart Smith on the next major growth phase for crypto

In the Headlines: The stories driving the conversation this week

• Ethereum DAT Sharplink purchased 10,000 ETH this week, bringing its total holdings to 886,725 ETH. This marks the treasury firm's first new purchase in 2026, accompanied by the repurchase of over two million shares of its SBET common stock. Even as crypto prices continue to stagnate and decline, buying activity has remained strong among treasury firms throughout the first half of the year.
• Spot bitcoin ETFs suffered their worst week on record in June, with $4.5 billion in net outflows. Analysts highlighted geopolitical and macroeconomic uncertainty as key causes, as well as a rotation of speculative capital into SpaceX's record-breaking IPO. Total assets under management in spot BTC ETFs have dropped over 35% since hitting a peak of over $110 billion earlier this year.
• President Trump's financial disclosures revealed crypto-related investments totaling hundreds of millions of dollars. The 927-page report covered investments in BTC, ETH, LINK, AAVE, and Strategy's MSTR stock, among others. The contents of the report are under particular scrutiny from Senate Democrats, who are pushing for conflict of interest amendments to the Clarity Act. FBI Director Kash Patel has also come under scrutiny this week for failing to disclose a six-figure MSTR stock purchase within the reporting deadline.

Top of the Charts: Total AUM of bitcoin treasury firms continues to grow, even as their combined market cap drops

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