Sharplink CIO Q&A: ETH and Digital Asset Treasuries | Matthew Sheffield - Sharplink

Okay, welcome back everybody. So now we're going to go to the ET and digital asset treasures topic here. So we will have Matthew Matthew Shifffield from Sharplink coming up. He's going to be talking about digital asset treasuries. Now it's a growing force in Ethereum with 15 billion dollars of ETH now on public balance sheets.

So he's going to give a brief sector overview and then open up for questions. Are you ready?

Beautiful. So you will take this one.

Thank you.

Hey everyone. So, I'm the CIO of a company called Sharlink, and last year we raised about $3 billion to purchase ETH, and we currently hold 867,000 ETH, and we are building what we consider to be the most productive Ethereum treasury. But this concept of digital asset treasury didn't really exist in the mainstream until last year. And it's kind of a term that the industry created to describe what is actually a really broad construct. And so I mostly wanted to open it up to questions after I give a brief intro of kind of what we're doing because I know that everyone is seeing this term everywhere and it means so many different things.

There are companies that are doing DATs for Bitcoin. There are companies that are doing DATs for ETH and an entire long tale of assets but also a lot of companies are taking different strategies when they're employing it. So Micro Strategy pioneered this putting crypto onto a public balance sheet in five six years ago at this point. But a Bitcoin treasury, especially the way that Micro Strategy is implementing it, is extremely different than, for example, what we're doing at Sharlink where we don't have any debt. We don't take a financialized position in it.

Instead, we focus on Ethereum's core value of native productivity, trying to take the staking rewards, the custom deployments that we do with participants in the ecosystem, and generate native productivity on top of it. And so my goal here was mostly to just open up for anyone that had questions on digital asset treasuries or if no one does, I can talk about some of the most common Q&A questions that we've been getting from a lot of the family offices, hedge funds, and some sovereign wealth funds that we've been visiting with the last few months since I joined the firm. So I don't know if anyone has any questions about digital asset treasuries. It doesn't have to be Sharp Link specifically. Honestly, I'm happy to just talk about anything in the DAT space.

I just know it's such a a new term and uh I wanted to kind of give people a chance to ask questions. Do you want to uh rip the mic? So, we've got a mic up here if you uh if you want. So now that am I audible? Yeah.

So now that the premiums have actually crashed uh how do you see that that companies will be able to recover the premium if ever and secondly cash flow generation because uh otherwise uh it just trades like a closedended mutual fund right and which will be typically the closedended mutual funds trade at a discount to the asset value NAV.

Yeah. So do you see that there are plans for generating cash flows which can jack up the enemy of the companies?

Yeah, that's a fantastic question. Just to kind of add more context to you guys. So MNAV, multiple of net asset value is a a term that the industry uses to describe if you're trading at a premium or discount to the value of your holdings. And for the longest time, a lot of these treasury companies last year as well as Micro Strategy historically have traded at premiums to the underlying that they're holding. And then last year over 200 companies put crypto on their public balance sheet and things got a little frothly.

There were periods of time when we saw stocks ripping 5 10x over very short periods and then what goes up did come back down. And now a lot of us I would say 99% are currently trading at a slight discount to our net asset value. And part of the core to the original micro strategy model was issuing equity when you were trading at a premium to the underlying and then buying more Bitcoin. And that is accretive to this concept of Bitcoin per share in the case of Micro Strategy. And so his question around what do you do when you're trading a discount valid especially if the only thing you're doing is financialized yield which a lot of companies are doing because they're not holding a productive asset.

So digital gold, Bitcoin is a fantastic balance sheet asset but that's the problem. You have to generate financialized yield if you want to generate more Bitcoin per share. So that's why you saw him pioneer a lot of things like preferred equity issuances, convertibles, etc. You have to create financialized yield. So as we all know, we're here at an ETH conference like Ethereum is very different.

It has this native productivity. Every day we're generating additional ETH per share regardless of whether or not the price of our stock is trading above or below its net asset value. when it was trading above, we were able to rapidly raise additional money, purchase additional ETH, and increase the ETH per share at an even faster rate. But today, we have more ETH than we had yesterday. Tomorrow, we'll have more ETH than we do today.

And what we're doing is we're trying to create a a procyclical and a counteryclical strategy. And right now, we can all agree it's fairly bare market. So, we're in that counteryclical. And so, we're doing that by doing uh deployments on chain with our partners in DeFi. So, our most recent deal, we did a $200 million deal with Etherfi, IEN Cloud, and Linear, our partners there, to do a liquid restaking token deployment for 2 years.

200 million for two years is a fairly large deal in the grand scheme of what the industry calls TVL deals. This is adding additional native yield to what we are already getting on the treasury, and we're getting OTC incentives. So even when the market isn't pricing things at a premium, Sharlink is still trying to use Ethereum's native productivity to its advantage without having to take on additional debt and then when it comes time to let's say get back to a bull market and I do think that that is sooner than people realize given all the incredible headlines that we are seeing from these large institutions. You still have the option to go for the financialized yield to be able to generate those quick periods of token concentration increase the same way that Micro Strategy does. We just don't want to be relying on it every day.

Hey, we want to have that native productivity still generating. So to your point, we don't think that necessarily the long-term state is that people trade at a discount if you're generating yield in excess of what someone could get somewhere else. So you could go and buy the Black Rockck ETF. Our CEO is the one that launched it, but there's no yield on it. Now, people are starting to launch some ETFs that stake part of their Ethereum, but there's this concept of daily liquidity.

And as a result of the fact that they need to be able to offer you every day the ability to redeem, they're not going to stake more than 30, 50, 70% at any given time. You're leaving a lot of juice on the table. So in my opinion, eventually digital asset treasuries will trade at effectively the net value of what you think they're going to do, outperformance or underperformance to just holding spot. So if you think that we're materially going to outperform the ETFs, we would trade it at premium. If you think that we're going to materially underperform the ETFs in our ability to generate value, then yeah, we should trade at a discount.

And so that's what we've been doing is building out that native productivity. And not just speaking for us, we see this across the industry. People are trying to carve out different verticals so that this concept of DAT isn't this one homogeneous notion anymore. It's more like a new sector within the industry with a lot of different companies approaching it in different ways. Thank you.

Yeah.

So his question was uh your ETH per share right now uh is four and so there's a metric on our website. So we have a transparent dashboard that we update every week and it's on our sharplink.com site where it shows how much ETH each share represents. And so 0.004 is how much ETH each share currently represents.

And he was asking what I think that will do in the long run. And so what I can say is this because we haven't yet actually reported our financials. Uh what I can say is every week we will publish how much yield we have generated and we do so every Tuesday and we'll continue to update the dashboard. We try not to give forward-looking indications of yield. But all we can say is that we're going to continue to tell the market every time we do a new deal.

We're going to continue to show the market the transparency behind a public company that every quarter you're going to get audited financials. You're going to see what we're earning headline. You're going to see what that nets out to and you're going to see the growth curve of that. And so while it's a bit of a tricky one because I can't actually say a number out loud and stay uh free, uh I do promise that we will always be transparent in the yield that we are generating and people can back into the yields through time uh by just going onto our site. The second thing I'll say on that front is that it's very spiky.

And so the thing we were just talking about procyclical countercyclical in periods when you're trading at a discount to net asset value, you're not going to be raising money from the ATM and rapidly increasing the amount of ETH per share via that financialized yield we were discussing. And so you can kind of think of it as what is their current portfolio onchain that we've said and what is that natively yielding and you can back into it. And then in periods where the market is rewarding us with a premium to our net asset value then you see these spiky periods of tokens per share concentration. So we launched a strategy in June. In the time since we've increased tokens per share by about 105% or so.

Uh a lot of that happens in those periods where the market is extremely interested in the strategy and rewarding you with a premium. So it's one of those slowly suddenly slowly suddenly types of things. But that's why we wanted to build a strategy that's more durable so that we're not always antsy just trying to get yield for yield sake financializing. We pick our spots when the opportunities are really rich. we are able to generate considerable value quickly and then when the market is selling off and things are countercyclical we're still generating that native productivity every day and trying to outperform the Ethereum staking rate.

Okay, so does anyone else have any questions? We've got three minutes more so I can also Yeah.

Yeah. Hi, I'm Peter from Protocol Guild. Um I'm just wondering you guys hold uh you know nearing a percentage now and have a stated goal if I understand correctly to hold multiples of that. Given Ethereum doesn't have the central coordination and funding apparatus that like a traditional software or technology firm does. Do you guys put any consideration into routing funding back into the R&D process?

Yeah, so it's a great question. We took an opinion that being a for-profit but benevolent capitalist in the Ethereum ecosystem is the best way to generate long-term sustainable value. Obviously, the foundation will still have its mandate and that's the most important thing for backing early stage projects that may not yet have a financial value to add, but we also thought that there was a strong place for someone to come in that was looking to do so profitably for their shareholders, but also if you own 867,000 ETH, you better be doing things that are good for the Ethereum ecosystem. And so the way that we're largely approaching that is by deploying our Ethereum to blue chip protocols and partners to help them with that cold start problem. A lot of protocols build incredible tech and then no one wants to use it because no one else is using it.

And there's a strength in numbers. You need someone to come in early that has enough size that they're willing to spend the time, money on the lawyers, on the smart contract review, etc. to basically derisk that thing. And so what we're trying to do is deploy our Ethereum with the folks in this room in ways that we think are safe but add additional value uh for our shareholders but also help them with that cold start problem, the 0ero to1 of getting the initial TVL so that they're no longer having to necessarily offer crazy inflationary incentives or use a lot of their VC dollars that could be hiring additional devs to just try to market incentives for people to farm for one to three months. We think that there's a real problem in the industry honestly with very short-term incentives getting farmed and then you move on to the next thing and people forget what you were working on before.

We see this constantly and so that's why we're taking a kind of longer term approach. Multi-year deployments give the ecosystem an opportunity to build resilient things that are institutional forward. And so we're kind of working on that uh via putting our ETH where our mouth is, but we're not actually doing grants and things like that since we still are a for-profit company here for the shareholders at the end of the day. I appreciate the question. So that is all the time I have.

I'm going to be hanging out here for a little bit if anyone wants to chat about DAT, but I appreciate you guys giving me the time. Thank you.