The Blade of Equity Dilution and the Infinite Moat in DAT Mode

Author: danny

Assuming that the previous collapse of the coin stock DAT was inevitable, how should investors respond? What strategies should be adopted? What algorithms and standards are there? Are there any successful cases in the market? What are their core competitive advantages?

Reading Guide:

1. Friends who haven't read the previous article are advised to go check it out: “The Hidden Biography of Coin and Stock: The Halving Blade Hidden in 'Equity Dilution' and mNAV Algorithm”

2. If you simply want to read case studies, you can continue reading below.

Part Four: The Truth of the “Moat” and the Future of the DAT Model

After understanding the operational mechanisms and risks of “coin stocks,” a core question arises: what exactly is the long-term competitiveness and “moat” of DAT-type companies? Where will their future lead?

4.1. The Truth About the Moat: A “Capital Flywheel” Dependent on Market Sentiment

The true “moat” of DATs does not stem from its business itself, but rather from a highly contextual and fragile financing advantage. Its core competitive strength lies in a powerful cycle of liquidity and financing costs: “financing ability → buying more coins → enhancing investor return expectations → attracting more liquidity → reducing financing costs → further enhancing financing ability.” This mechanism, known as the “capital flywheel,” is essential for understanding its business model.

Positive cycle (in a bull market):

This flywheel can generate a strong positive driving force during a bull market.

High premium is the fuel: The company's stock price trades at a price higher than the net asset value (NAV) of the digital assets it holds, forming an “equity premium” (mNAV Premium). This premium is the key fuel that starts the entire flywheel.

Financing capability activated: With a high premium, the company can conduct “accretive” financing by issuing new shares or low-interest convertible bonds, which means using highly valued stocks to raise funds to purchase more digital assets, thereby expanding the balance sheet without diluting or even increasing the per-share coin amount.

Liquidity and Low Cost: When market sentiment is high and stock liquidity is excellent, companies can easily sell a large number of new shares in the public market without causing significant price impact, which greatly reduces the friction costs of financing.

“Buy, buy, buy” strengthens the narrative: The company will continuously use the funds raised to purchase more digital assets, which not only increases the company's net asset value but also reinforces its market narrative as a “growth engine”, attracting more investors, further driving up stock prices and premiums, creating a powerful positive feedback loop.

Inverse Destruction (Bear Market):

However, this powerful engine has a fatal weakness: it relies entirely on sustained bullish sentiment and high stock premiums. Once the market turns, the flywheel can quickly reverse, turning into a 'death spiral':

Premium disappears, fuel runs out: When the price of the underlying coin drops, the stock price of “coin stocks” will fall even more sharply, causing their mNAV premium to shrink rapidly, or even turn into a discount.

Financing capability is frozen: Once the premium disappears, any financing activity through issuing additional shares will be “dilutive.” At this point, the company can no longer pursue value-adding financing, and its core growth story collapses. The financing capability—this sole moat—instantly dries up.

Negative feedback loop: The depletion of financing channels and the collapse of growth narratives can trigger panic selling by investors, further suppressing stock prices and creating a vicious cycle, which may ultimately lead to a collapse in stock prices.

Therefore, the moat of DATs is extremely narrow and unstable, as it relies entirely on the fickle sentiments of the capital market. Once market sentiment reverses and the premium disappears, this moat will dry up instantly, and the company will lose its only competitive advantage.

4.2. Comparative Case Studies: The Practice and Variation of Strategy

Although the basic model is similar, different DATs exhibit significant differences in specific strategic execution, which reflect their different understandings of their positioning, market environment, and regulatory constraints.

Strategy Inc. (MSTR) - Aggressive Pioneer

As a pioneer in the model, MicroStrategy's strategy is the most aggressive. It not only makes extensive use of various debt instruments (such as convertible bonds) to maximize leverage, but its founder, Michael Saylor, has also created a “soft moat” for the company through his strong personal brand and continuous evangelism. He has successfully bound MicroStrategy deeply with BTC, making it the most well-known BTC proxy stock in the minds of global investors, and this brand recognition has, to some extent, reinforced its mNAV premium.

Metaplanet Inc. (3350.T) - Flexible International Adapter

The case of Metaplanet showcases how the DAT model innovates and adjusts according to the market environment of specific countries or regions. Its strategy cleverly leverages Japan's unique macro and regulatory environment:

Yen Carry Trade (: Against the backdrop of the Bank of Japan maintaining ultra-low interest rates for a long time, Metaplanet borrows yen at near-zero cost and converts it into BTC, which is expected to appreciate in the long term, thus engaging in macro arbitrage.

“Moving Strike Warrants” )Moving Strike Warrants(: Due to Japanese regulations prohibiting the common ATM issuance mechanism in the US stock market, Metaplanet has innovatively employed a warrant whose exercise price is linked to the previous day's closing price. This design ensures that the warrants are only exercised when the stock price rises, thereby achieving a dilution financing effect similar to ATM at high stock price levels.

Tax advantages: Japan levies high progressive taxes on individuals who directly hold cryptocurrency, while the capital gains tax rate on stock investments is much lower (around 20%). This tax difference makes it more attractive for Japanese investors to indirectly hold BTC by purchasing Metaplanet stocks, creating localized demand for the stocks compared to directly buying BTC.

Semler Scientific )SMLR( - Cautious Business Integrator

Semler Scientific represents a more conservative approach - the “Slow Money” model. The company plans to gradually and prudently purchase BTC using the stable cash flow generated by its core healthcare business, aiming for a more “value-adding” accumulation of assets for shareholders. This model is theoretically more sustainable as it does not rely entirely on external financing. However, the challenge lies in the fact that the company's core business is facing growth bottlenecks and regulatory pressures, complicating the narrative of generating sufficient cash flow to support large-scale BTC purchases.

Tron Inc. )TRON( - Reverse Merging and Mixing Mode

Tron Inc.'s case demonstrates a non-traditional path to listing and business structure. The company, formerly known as SRM Entertainment, entered the public market through a reverse merger with TRON DAO and rebranded as Tron Inc. This strategy allowed it to quickly become a NASDAQ-listed company and focus on building a financial reserve for the TRX token. Its uniqueness lies in its hybrid business model: it retained its original business of designing and manufacturing custom merchandise for large entertainment venues like Disney and Universal Studios, while also exploring blockchain financial strategies. Additionally, the company actively utilizes its TRX reserves for staking, generating annualized returns of up to 10% through platforms like JustLend, providing non-dilutive cash flow for its operations. (From a bird's eye view, the $TRX token has not left the Tron network.)

BitMine Immersion Technologies )BMNR( - Radical Ethereum Whale

BitMine )BTMR( represents a radical expansion of the DAT model into assets outside of BTC. The company has transitioned from BTC mining to focusing on becoming the world's largest enterprise-level holder of Ethereum (ETH), setting an ambitious goal of holding 5% of the total circulating ETH supply. Its strategy is characterized by an astonishing pace of financing, accumulating ETH reserves worth billions of dollars in a short time through large-scale private placements (PIPEs) and equity financing. This aggressive accumulation strategy has attracted high-profile investors, including Peter Thiel's Founders Fund and Stanley Druckenmiller, with Tom Lee of Fundstrat serving as chairman. However, BMNR's stock price has shown extreme volatility, experiencing thousands of percentage points of skyrocketing gains followed by significant corrections, highlighting its high-risk, high-reward nature. Due to its core business (mining) generating slim revenues and being in a loss position, its valuation is almost entirely driven by market expectations of ETH prices and confidence in its financing capabilities.

4.3. The Next Evolution: “Productive Finance”

In the face of the inherent vulnerabilities of passive holding strategies, the DAT model is undergoing an important evolution, shifting from “Passive Treasury” to “Productive Treasury.”

Traditional BTC financial strategies are essentially a passive “digital gold” strategy, where the asset itself does not generate any cash flow. In contrast, the “productive finance” model focuses on holding digital assets that can generate returns through network-native mechanisms, primarily public chain tokens that adopt the POS consensus mechanism, such as ETH and SOL.

By staking the ETH or SOL held, companies can directly earn token-denominated rewards from the protocol. This staking yield is an intrinsic, crypto-native “interest” that does not rely on traditional credit markets, providing companies with a stable, non-dilutive cash flow source. The emergence of this model signifies that DATs may transition from merely financial engineering vehicles to operating companies with genuine crypto-native businesses. For example, companies like DeFi Development Corp. )DFDV( are focusing on accumulating SOL and generating staking yields by operating validation nodes. (TRON Inc is also considered to be at the forefront of the times.)

The evolution towards “productive finance” is a strategic response to the reality that the moat of passive holding models is too fragile. By creating endogenous cash flows that are decoupled from market sentiment, these companies are attempting to build a wider and deeper economic moat, thereby reducing their extreme dependence on financing ability in bull markets and providing a more solid foundation for their long-term survival and development.

Part Five: Conclusion - Looking Through the Fog to See the Essence

For investors looking to invest in such companies, it is essential to abandon the view of them as simple “crypto asset stocks” and instead evaluate them as a highly speculative, actively managed leveraged fund. The ultimate investment performance depends on the complex interaction of the following four core variables:

The price performance of underlying crypto assets: This is the foundation that determines the company's net asset value (NAV).

The financial engineering capability of the management: that is, the speed, cost, and dilution costs at which the company raises funds and converts them into assets.

Market Sentiment in the Stock Market: This is key to determining the company's mNAV premium level, directly affecting its financing ability and the strength of the “flywheel effect”.

Net crypto asset holding per share: This determines the level of crypto assets allocated per share.

Taking Strategy Inc BTC as an example, when evaluating “coin stocks,” it is important to closely monitor the following key indicators, rather than just focusing on the total BTC holdings announced by the company:

Per share (fully diluted) crypto asset content: This is the most important indicator for measuring the real exposure of shareholders. Investors should closely track its historical trend to determine whether the company's financing activities are value-adding or value-diminishing in the long term.

Trend of mNAV Premium: Is the premium expanding or contracting? A sustained contraction of the premium is a clear signal of weakening market confidence and increasing risk. Comparing it with peer companies and related ETFs can provide a better assessment of whether its valuation is reasonable.

Financing/Issuance Terms: Carefully examine the specific terms of each bond issuance or capital increase by the company, including the conversion price and interest rate of convertible bonds, as well as the scale and price of the ATM program execution. These details reveal the company's future dilution risk and financial pressure.

Know the facts, and also know the reasons behind them.

The “capital flywheel” that drives the price surge of DAT in a bull market is precisely the fundamental reason that leads to their accelerated decline in a bear market. Its core business model—financing the purchase of more assets by leveraging high stock price premiums—is inherently a double-edged sword. This extreme dependence on market sentiment determines that their fate is inevitably closely tied to the cyclical fluctuations of the market.