Beta, meet cash
By Prathik Desai
Photo by Block Unicorn
"The farther you look back, the more likely it will be." - Winston Churchill
THE CURRENT STATUS OF THE DIGITAL ASSET BANK (DAT) IS STRIKINGLY SIMILAR TO THAT OF THE CLOSED UNITED STATES FUNDS OF THE 20TH CENTURY. PEOPLE BUY THE SHARE OF CLOSED FUNDS, WHICH THEN BUY SHARES ON THE OPEN MARKET. INVESTORS INDIRECTLY RECEIVED THE BETA GAINS FROM THESE STOCKS, FOR WHICH THEY PAID A PREMIUM. THE SPECULATIVE PREMIUMS FOR THESE FUNDS WERE ONCE AS HIGH AS 30 PER CENT OF THE NET FUND VALUE (NAV), UNTIL THE STOCK-MARKET BUBBLE IN 1929 TURNED THE PREMIUM INTO A DISCOUNT. INVESTORS HAVE COME TO THE BITTER REALIZATION THAT THIS TYPE OF INVESTMENT IS NOT COST-EFFECTIVE。
AND WHEN I READ THIS, IT FELT LIKE I KNEW EACH OTHER, JUST LIKE EVERYTHING WE'VE SEEN IN THE DAT ECOSYSTEM OVER THE PAST FEW MONTHS. IT IS DIFFICULT NOT TO SEE SIMILARITIES。
Bitcoin-based DAT (e.g. Strategy) provides leverage gains linked to BTC prices. Investors paid a premium for this. This wheel effect works when the price of encrypted currency rises; but it collapses when markets collapse. The key to the sustainability of DAT in the market cycle lies in what assets its appreciation is linked to. Most encrypted money vaults around BTC and ETH are leveraged against the price increases for the targeted encrypted money。
But what if the currency price is closely related to the income generated by its ecosystem? What if it has little relevance to uncertainty? Ideally, what if it were negative for other asset classes during periods of macroeconomic uncertainty
IN TODAY'S IN-DEPTH ANALYSIS, I WILL USE THE EXAMPLE OF A HIPE-BASED DIGITAL ASSET STRATEGY (DAT) COMPANY TO EXPLORE WHY DAT'S ASSET SELECTION WILL DETERMINE THE SUSTAINABILITY OF ITS DIGITAL ASSET STRATEGY。
The DAT tour of Hyperliquid Strategies (Equities Code: PURR) began with the establishment and possession of Rorschach LLC, a special-purpose buying company (SPAC). Subsequently, the company merged the SPAC in reverse with Sonet BioTherapes. Sonet BioTherapeutics, a biotechnology company listed in NASDAQ, was in a difficult situation when its flagship anti-cancer drugs had been looking for commercial partners for years。
This is the same strategy that Twenty One Capital used on the BTC project, when BTC was supported by Tech, Cantor Fitzgerald and soft silver。
PURR HELD 12.6 MILLION HYPE TOKENS AT THE BEGINNING OF ITS EXISTENCE, VALUED AT $583 MILLION, AND $305 MILLION IN CASH. EARLIER THIS YEAR, THE COMPANY SPENT $129.5 MILLION TO PURCHASE 5 MILLION ADDITIONAL HYPE COINS。
But why should Hyperliquid Strategy get better results than before DAT
Different cans
IN THE FIRST WAVE OF DAT, THE FORM OF SEALING ITSELF IS AN INNOVATION. THE COMPANY COULD CONVERT BTC INTO ETH OR ETH INTO SOL, AND THE MODEL WORKED WELL. THIS IS BECAUSE ITS FLYER EFFECT IS BUILT AROUND PREMIUMS ON THE COMPANY ' S NET ASSET VALUE (NAV). WHAT IS AT THE BOTTOM IS NOT IMPORTANT. AS LONG AS DAT SHARES ARE TRADED IN PREMIUM TERMS, INVESTORS BUY AND EXPECT HIGHER RETURNS FROM HIGHER TOKEN PRICES。
However, when it is difficult to recover from the largest single-day liquidation of the encrypted currency industry, this bet is reversed。
DAT’S EXPERIENCE WAS NOT UNEXPECTED, DESPITE THE SUDDENNESS OF THE LIQUIDATION, WHICH FOLLOWED A NEW TRADE TARIFF THREAT TO CHINA FROM US PRESIDENT DONALD TRUMP。
A few months before the liquidation, we wrote about the risk of the DAT model of Bitcoin Treasury, which is a strategic leader:
“The strategy worked well during the period of Bitcoin Cow, when capital added to the capital and could be used to purchase more bitcoin, while the rise in market value led to a sharp rise in financial returns. The sustainability of the model, however, depended on continued market access and rising bitcoin prices. Any significant decline in the encrypted currency market rapidly reverses performance in the second quarter, while fixed expenditures such as interest on debt and preferential dividends will continue.”
In mid-November, we saw real-time concerns about DAT for months: the fall in mNAV, the slowdown in the purchase of national debt, and the fall in DAT stock prices。
THE PROBLEM WITH THIS SET OF STRATEGIES IS THAT THE THREE MAIN TREASURY ASSETS — BITCOIN, ETH AND SOL — ALL HAVE A COMMON AND DELICATE FLAW: THEY DO NOT THEMSELVES GENERATE CASH FLOWS. THEIR PRICE INCREASES DEPEND ENTIRELY ON HOW PEOPLE TRADE THESE ENCRYPTED CURRENCIES. THIS IS DRIVEN BY A NUMBER OF FACTORS: ETF FINANCIAL FLOWS, INSTITUTIONAL INVESTOR INTEREST, ONLINE FORUMS AND COMMUNITY DISCUSSIONS, AND INVESTOR PERCEPTIONS OF THE ROLE OF BTC AS “DIGITAL GOLD” IN MACROECONOMIC PATTERNS。
INDEED, ETH AND SOL DO COMPENSATE FOR THE SLOW APPRECIATION OF THEIR CURRENCIES THROUGH PLEDGE INCENTIVES. HOWEVER, THE PLEDGE INCENTIVE IS PAID IN THE FORM OF A NEWLY FORGED TOKEN. EACH TIME ETH AND SOL PLEDGE INCENTIVE IS PAID, THE INTEREST OF THE EXISTING TOKEN HOLDER IS DILUTED FOR PAYMENT TO THE CERTIFYING OFFICER。
FUNDS HOLDING THESE ASSETS (WHETHER BTC, ETH OR SOL) OPERATE IN A MANNER SIMILAR TO HOLDING A SINGLE CLOSED FUND WITH NO RED-HEAD POSITION. THE ONLY WAY TO MAKE A PROFIT IS BY INCREASING THE PRICE OF TOKENS OR INCREASING THE NET PRICE PREMIUM. THE FORMER ARE AFFECTED BY MARKET FLUCTUATIONS, WHILE THE LATTER ARE DRIVEN BY MARKET NARRATIVES。
Although fees would arise in the case of both the Taifung and Solana, only a relatively small portion of the income would be returned to currency holders. In 2025, some $515 million was generated from the handling fees of the Taifeng chain, compared to $645 million in Solana. Most of them did not reach the holders of the tokens; they were either seized by the certifying officers or offset by newly issued tokens。
By contrast, the Hyperliquid agreement cost close to $1 billion last year. More convincingly, 97 per cent of these costs were returned to HYPE holders through the Assistance Fund through repurchase。
Hyperliquid currently has average daily transactions of between $5 billion and $7 billion, with average monthly transactions of about $20 billion, generating approximately $730 million per year in cost income from transactions. Thus, each dollar transaction on Hyperliquid contributes to enhancing the basic aspects of the HYPE pricing。
THIS MAKES THE HYPE VAULT FEEL NO LONGER LIKE KEEPING BTC OR ETH IN THE VAULT WAITING FOR MARKET VALUATION, BUT MORE LIKE A RECEIPT WITH A FEE ON THE DERIVATIVES EXCHANGE。
ANY LISTED PACKAGE HOLDING HYPE, INCLUDING THE RECENTLY HELD HYPE BY PURR, REMAINS IN ESSENCE A BET ON THE HYPE PRICE. THEIR ORGANIZATIONAL STRUCTURE IS THE SAME AS THAT OF BTC, ETH OR SOL TREASURY. THIS ALLOWS US TO VIEW THEM FROM THE SAME PERSPECTIVE. HOWEVER, GIVEN THE UNDERLYING FACTORS DRIVING THE PRICE MOVEMENT OF THE COIN, I AM MORE OPTIMISTIC ABOUT THE HYPE TREASURY。
The PURR share price reflects its indirect claim for the present value of all cash flows generated by the Hyperliquid Agreement from its derivatives business。
You don't have to believe everything I say. Hyperliquid has proved this many times recently。
A proven case
DURING THE AMERICAN-ISRAELI WAR LAST MONTH, BOTH RISKY ASSETS AND TRADITIONAL MARKETS FLUCTUATED. HYPE ROSE BY 40 PER CENT, WHILE THE GENERAL 500 INDEX AND BITCOIN WERE WEAK. THE FORMER FELL 3 TO 5 PER CENT, WHILE THE LATTER ROSE 5 PER CENT。
SINCE OCTOBER 10TH, THE LARGEST CASE OF ENCRYPTED CURRENCY CLEARING, THE PRICE OF HYPE HAS INCREASED BY ABOUT 60%, WHILE THE PRICE OF BTC HAS FALLEN BY 40%。
This is not a coincidence. Uncertainty-driven volatility is not conducive to passive value storage but to derivative exchanges. Uncertainty prompts traders to compete. The liquidation would entail costs for both parties to the transaction. The erosion of the net value (mNAV) of the Bitcoin Treasury strategy is conducive to increased financial flows by traders at the place of dealing。
The town of bear, which led to the end of Bitcoin and the Etherak Treasury, brought record trade volumes and fees to Hyperliquid ' s ecosystem. Bitcoin and the Etherwood vaults can only wait for the market to collapse, and Hyperliquid's profits thrive in this environment。
The Hyperliquid HIP-3 market further reinforces this argument by introducing traditional assets, including metals such as silver and gold, into block chains and allowing investors in financial markets to express their views across asset classes。
I THINK THAT'S THE MOST IMPORTANT REASON WHY HYPE'S DAT STRATEGY IS DIFFERENT FROM OTHER STRATEGIES。
Nobody's safe
PURR’s DAT strategy remains a bet on Hyperliquid prices. Hyperliquid may lose its original market share, be replaced by competitors like Lighter, Aster, or some that have not been conceived。
However, despite these challenges, it is the bottom asset choices that inspire confidence. PURR’s institutional supporters promoted their DAT strategy as “the only way for American investors to participate in hype”. But if the Foundation is allowed to issue HYPE spot ETF, then the entire DAT strategy may be out of date. 21 Shares and Grayscale have submitted their applications。
Earlier DAT needs to worry about how to maintain its net premium. This depends on market psychology and investor confidence in models. And DAT, based on HYPE, has to answer just one simpler question: can Hyperliquid sustain profit? This issue depends more on weekly cost data, potential market shares and the road map for the agreement, which also includes the forthcoming HIP-4。
All these are data that analysts can use to make informed decisions. Analysts can still make mistakes, but there are data that support their judgement。
There is a rebuttal here。
What happens if Ether and Solana earn more than Hyperliquid in fees? This is not impossible. However, considering that Hyperliquid returns proceeds to HYPE holders by repurchase, the situation is much more complex。
Although some of the fees were returned to ETH holders by ITA, they would be fully offset by the new ETH issued by it to the certifying officer. Solana's fees are fully owned by the certifying officer and ultimately flow to the Solana holder in only a small part. Whether it be the Taifeng or Solana, to reach the level of return on Hyperliquid tokens, it is necessary to rewrite its bottom-up currency economic model. At the same time, network activity must be several times higher than current levels. None of this can be done overnight。
EVEN IF THIS WERE TO HAPPEN, I BELIEVE THAT THE SAME ARGUMENTS ARE VALID. I DON'T THINK HYPE WILL EVER BE THE ONLY SUCCESSFUL ASSET OF DAT. I BELIEVE THAT DATS BUILT ON ASSETS THAT CAN GENERATE SUSTAINED GAINS FOR THE HOLDERS WILL HAVE A LONGER LIFE THAN THOSE BUILT ON ASSETS THAT CANNOT GENERATE SUSTAINED GAINS。
THE TWO MODELS ARE DIFFERENT. THE FIRST GENERATION OF DAT (DEBT FINANCING AGREEMENTS) EXPECTS INVESTORS TO BELIEVE IN THE STORIES THEY BUILD FOR SALE, WHILE THE SECOND EXPECTS INVESTORS TO BELIEVE IN THEIR CASH FLOWS。
The closed funds that survived the bubble economy in 1929 were those that continued to distribute dividends during the downturn. Everything else is just a wrapping of speculation。
DAT BASED ON SPECULATION MAY END UP DYING, AS OTHER DATS DO. NO ONE CAN BE SURE. HOWEVER, CRITICISM OF THEM IS LIKELY TO REVOLVE AROUND MARKET SHARES, PRICE STABILITY AND OTHER BASIC BUSINESS INDICATORS. AT LEAST NOT LIKE THE BTC DAT CRASH THAT ENDS WITH A "I TOLD YOU."。
