'Self-dealing, dressed up as capital deployment': Crypto treasury craze divides the industry

Digital asset treasuries (DATs) have become one of crypto's most polarizing trends. Supporters say they boost token adoption and returns; critics see troubling optics that suggest major holders are quietly engineering a cash-out.

With billions of dollars at stake, high-profile figures such as President Donald Trump, Binance founder Changpeng Zhao, and Tron's Justin Sun are in the mix.

Brian Rudick, who serves as chief strategy officer at Solana treasury company Upexi, has been a vocal supporter of DATs.

"Digital asset treasury companies are mostly a one-way acquisition vehicle that can push up token prices, which can attract users, developers, and dApps," Rudick told The Block. "[They] can materially raise a token ecosystem's visibility, particularly amongst traditional investors and institutions."

The DAT concept dates back to Michael Saylor’s decision from five years ago to turn his publicly-traded software company MicroStrategy (now Strategy) into an accumulator of Bitcoin. After BTC's price took off, especially at the end of last year, Strategy's shareholder value rose exponentially. The company's Bitcoin-first pivot suddenly appeared genius and Strategy's success inspired copycats across crypto.

The DAT frenzy slowly began to spread in 2024, initially kicking off with other companies announcing Bitcoin treasury strategies. Before long, firms pivoted to accumulating large quantities of other popular coins like Ethereum and Solana.

Finally, the fervor gave way to a new breed of DAT, altcoin-focused treasuries with direct ties to the people and organizations closest to the underpinning token. But the nature of the transactions and the closeness of the relationships between some of these newly-formed DATs — oftentimes small-cap Nasdaq stocks with no previous exposure to crypto — and the tokens' developers, biggest supporters and major holders, has raised some eyebrows.

"A lot of these digital asset treasury formations involve insiders of the very assets that these firms were created to buy. These structures obviously bring up ethical questions on who gets privileged access and information around their formations and strategies," said The Block's Research Director Steven Zheng.

Trump-backed digital treasury for unlisted token

The Trump family-backed crypto venture World Liberty Financial said this week it is raising $1.5 billion to start a treasury for its WLFI governance token, a coin not currently tradeable and not listed on exchanges.

Shortly after, World Liberty co-founder Zach Witkoff revealed specific details related to the deal behind transforming a small tech firm, ALT5, into a WLFI accumulation machine.

"If you look at the pre-market … our token [WLFI] trades somewhere between $0.35 and $0.90, that represents a $35 billion to $90 billion fully diluted valuation," Witkoff said in a televised interview with CNBC. "ALT5 acquired these tokens at a $0.20 valuation. If you take the simple average of the pre-market trading, you come up with a valuation around $0.56. That means based on ALT5's acquisition, they acquired these tokens [at] around a 64% discount, which we think is going to be quite accretive for shareholders."

World Liberty was lead investor in the $1.5-billion, essentially swapping WLFI tokens for ALT5 shares. Additionally, Eric Trump will be working alongside Witkoff on ALT5's board, the company said. President Trump and his sons are advocates for the World Liberty project.

World Liberty didn't immediately respond to a request for comment.

The Open Network DAT's discount

This month, Nasdaq-listed Verb Technology said it would raise $558 million to accumulate Toncoin, the native token of The Open Network, or TON blockchain. Venture capital firm Kingsway Capital, Ribbit Capital, and Vy Capital participated in the multi-million dollar placement, among others. TON is the exclusive blockchain connected to Telegram, the messaging app run by Pavel Durov, who in 2023 said he held Toncoin.

According to an investor's presentation filed with the SEC, Verb Technology, rebranding as TON Strategy, will benefit from purchasing TON at a discount. "Based on TON Strategy Co.'s board of directors', management's and advisor's existing relationships in the TON ecosystem, the company believes that it can secure a substantial supply of TON at ~40% discount to the market price," it said in a presentation.

Kingsway Capital, Vy Capital, and Ribbit have been believers in TON at least since March, when the three investment firms all participated in the mass purchase of $400 million worth of Toncoin from "early investors," according to a TON spokesperson. Kingsway Capital CEO Manuel Stotz now also serves as both president of the TON Foundation and executive chairman of the recently formed DAT, TON Strategy.

Some long-time crypto insiders say the closed-loop dealings on display with deals like that of TON Strategy, World Liberty, and others are familiar.

"The information that is a gray area in crypto could very well be considered insider information in equities," said one industry insider who preferred to remain anonymous.

TON Strategy and TON Foundation declined to comment.

Other high-profile DAT deals welcome scrutiny

World Liberty and TON Strategy are not alone. Projects featuring the likes of Binance founder Changpeng Zhao and Tron founder Justin Sun possess similarly close-knit deal dynamics.

In the case of Zhao, his family investment office led a $500-million investment to turn Nasdaq-listed CEA Industries into a BNB treasury, the native token to the blockchain established by Binance. Zhao, who is suspected to possess a net worth in excess of tens of billions of dollars, said earlier this year that 98% of his crypto is held in BNB.

In June, toy maker SRM Entertainment, which traded on the Nasdaq, "entered into a Securities Purchase Agreement with a private investor" for $100 million in order to "initiate" a DAT strategy focused on amassing the Tron network's native token TRX. Simultaneously, Tron's founder Sun, was named an advisor to the company. 

SRM Entertainment then rebranded as Tron Inc. With 365 million TRX on its balance sheet, Tron Inc. has billed itself as the public company with the largest holding of TRX tokens. End of last month, the Sun-linked DAT filed a shelf statement to issue up to $1 billion in mixed securities in order to buy more TRX.

Hyperliquid DAT's shares moved early

The DAT deal for Hyperliquid's native HYPE token also involved key players, with the project's VC backer Paradigm helping structure the deal. The formation of the HYPE treasury involved Sonnet BioTherapeutics, Inc., an "oncology-focused" biotech, transitioning to a DAT model. The company is being rebranded as Hyperliquid Strategies Inc.

Nearly two weeks ahead of the announcement, after Sonnet's stock had been stagnant between roughly $1.00 and $1.50 per share for the entirety of this year, the firm's shares began to climb after the company "completed a sale to certain accredited investors of convertible notes" valued at $2.0 million. At one point, Sonnet's shares had risen over 300% days on increased trading volume. Then after the company announced it was pivoting to a HYPE treasury, Sonnet's shares jumped again to nearly $10, according to Yahoo Finance.

"We hear lots of institutional demand for exposure to Hyperliquid, yet the native token HYPE is difficult to access in the United States," Paradigm co-founder Matt Huang said the day of the announcement. "We are excited about this treasury strategy, which we believe will contribute to the Hyperliquid ecosystem in many ways over time."

In the announcement from mid-July, the firms disclosed that the DAT was "expected to hold approximately 12.6 million HYPE tokens, representing $583 million in value" based on spot prices. The DAT's new ownership is, arguably, a bit complicated: Sonnet entered into a "business combination with Rorschach I LLC, a newly-formed entity formed by an entity affiliated with Atlas Merchant Capital LLC, an affiliate of Paradigm ... and additional sponsors."

Rorschach now owns 98% of Sonnet, now Hyperliquid Strategies. Galaxy Digital and Pantera Capital, among others, participated in the formation of the DAT.

These type of deals, where the shares jump ahead of an announcement, have the potential to reinforce the idea that insiders could be benefiting unfairly.

"This is the kind of circular-economy optics that gives crypto skeptics something to talk about for years," Komoto CTO Kadan Stadelmann told The Block when asked about the new wave of DATs with ties to founders and large holders.

"When a treasury firm takes money from VCs or foundations to buy tokens those same VCs already hold, you’re not managing assets, you’re manufacturing exit liquidity, Stadelmann said. "It's self-dealing, dressed up as capital deployment."

Paradigm declined to comment. Representatives for Hyperliquid Strategies did not immediately respond to a request for comment.

Alluvial CEO Mara Schmiedt has taken a more optimistic stance. The executive sees crypto projects leaning into forming publicly listed companies as an opportunity to enhance accountability.

"Publicly registered companies are subject to strict disclosure requirements and are expected to maintain robust conflict of interest policies,” she told The Block. "When these entities participate in crypto treasuries, they bring a level of accountability that can raise the bar for the entire ecosystem."

'Insider trading is a crime'

Backers of the recently formed SUI treasury company appear to be making an extra effort to create a narrative investors can trust.

"Insider trading is a crime," Mill City Ventures CIO Stephen Mackintosh told The Block, adding that the SUI-focused DAT he supports hasn't bought "any locked tokens from investors who wanted to get out of their vesting schedule."

At the end of July, Mill City Ventures, a short-term non-bank lender listed on the Nasdaq, shifted to a SUI treasury strategy through a private placement worth $450 million. Besides making up part of Mill City's new leadership team, Mackintosh is co-founder of the London-based hedge fund Karatage, which acted as lead investor in the private placement.

Mill City negotiated an agreement to buy SUI tokens at a discount from SUI Foundation, said Mackintosh, but so far, it appears the discount is reasonably small, especially when compared to World Liberty and TON Strategy's deals.

The SUI treasury company said this week it had acquired roughly 5.6 million more SUI at an average price of $3.65, bringing its total supply to nearly 81,9 million tokens. That price was only slightly less than the $3.80 to $3.90 range SUI was trading between the previous day.

Mackintosh, who has long-standing ties with both SUI Foundation and the developers of the underlying technology Mysten Labs, said his team's shares will be locked for 12 months to demonstrate to "the SUI community, and the investor community, our shareholders, that we’re long-term focused." He also said the tokens the DAT is purchasing from SUI Foundation will be locked for "approximately" two years.

"We believe that the asset SUI is going to compound in the next 10 years," Mackintosh said. "That's what Michael Saylor has proved, that you want to purchase a scarce asset."

Update: Removed mention that the "sponsors" in the Hyperliquid Strategies were unnamed and added a clarification that Galaxy Digital and Pantera Capital, among others, participated in the formation of the DAT. Also added more details regarding Sonnet BioTherapeutics's share increase leading up to it announcing it would pursue a HYPE treasury strategy.