Author: kevin

Compiled by: Luffy, Foresight News

While the cryptocurrency community has long been enthusiastic about tokenized and on-chain assets as a means of increasing accessibility, the most notable progress has actually come from the integration of cryptocurrencies with traditional securities. This trend is perfectly reflected in the recent surge in public market interest in "corporate crypto asset treasuries."

Michael Saylor’s Strategy pioneered this strategy, building his company into a $100 billion company, outperforming even Nvidia. We elaborate on this blueprint in our article on Strategy. The core logic of these financial strategies is that public offerings of stock can obtain lower-cost unsecured leverage that is not available to ordinary traders.

Recently, attention has expanded beyond Bitcoin, with Ethereum-based treasury strategies such as Sharplink Gaming (SBET, led by Joseph Lubin) and BitMine (BMNR, led by Thomas Lee) gaining traction. But does an Ethereum treasury make sense? As we argued in our analysis of MicroStrategy, companies are essentially attempting to arbitrage the long-term compound annual growth rate (CAGR) of the underlying asset against their own cost of capital. In a previous article, we outlined the logic behind Ethereum’s long-term CAGR: it is a scarce, programmable reserve asset that plays a fundamental role in securing the on-chain economy as more assets migrate to blockchain networks. In this article, we will explain why Ethereum treasury has a bullish trend and provide operational advice for companies adopting this treasury strategy.

Access to liquidity: the cornerstone of treasury companies

One of the main reasons why tokens and protocols seek to create these treasury companies is to provide tokens with access to traditional financial liquidity, especially as altcoin liquidity declines in the crypto market. Typically, these treasury strategies obtain liquidity to purchase more assets in three ways. Importantly, this liquidity/debt is uncollateralized, i.e., non-redeemable:

• Convertible bonds: Raise funds by issuing debt that can be converted into shares, with the proceeds used to purchase more Bitcoin;
• Preferred Stock: Raising capital by issuing preferred stock that pays a fixed annual dividend to investors;
• At-the-Market (ATM) Offering: Selling new shares directly on the open market to raise flexible, real-time funding for purchasing Bitcoin.

Why Ethereum Convertible Bonds Are Better Than Bitcoin Convertible Bonds

In a previous article on Strategy, we pointed out that convertible bonds offer two main advantages to institutional investors:

• Downside protection and upside exposure coexist: Convertible bonds enable institutions to gain exposure to the underlying asset (such as Bitcoin or Ethereum) while safeguarding the principal investment through the bond’s inherent protection characteristics;
• Volatility-driven arbitrage opportunities: Hedge funds often purchase convertible bonds not only to gain exposure, but also to execute gamma trading strategies to profit from the volatility of the underlying asset and its securities.

Among them, Gamma traders (hedge funds) have now become major players in the convertible bond market.

With this in mind, Ethereum’s higher historical and implied volatility compared to Bitcoin is a key differentiator. Ethereum Treasury inherently reflects this higher volatility in its capital structure by issuing Ethereum Convertible Bonds (CBs). This makes Ethereum-backed CBs particularly attractive to arbitrageurs and hedge funds. Crucially, this volatility also enables Ethereum Treasury to obtain more favorable financing terms by selling CBs at higher valuations.

 Figure 1: Comparison of historical volatility of Ethereum and Bitcoin Source: Artemis

For convertible bond holders, higher volatility increases the opportunity to profit through gamma trading strategies. In short, the higher the volatility of the underlying asset, the more profitable gamma trading is, which gives Ethereum Treasury convertible bonds a clear advantage over Bitcoin Treasury convertible bonds.

 Figure 2: Comparison of historical volatility of BMNR and MSTR Source: Artemis

However, there is an important caveat: if Ethereum fails to maintain its long-term CAGR, the appreciation of the underlying asset may not be enough to support conversion before maturity. In this case, the Ethereum Treasury will face the risk of full repayment of the bond. In contrast, the probability of such downside risk is lower with Bitcoin, as most convertible bonds under this strategy have historically converted into stock.

 Figure 3: Four-year CAGR: Ethereum vs Bitcoin. Source: Artemis

Why Ethereum’s Preferred Stock Issuance Provides Differentiated Value

Unlike convertible bonds, preferred stock issuance is designed for the fixed income asset class. While some convertible preferred stocks offer mixed upside, yield remains the primary consideration for many institutional investors. These instruments are priced based on underwriting credit risk, i.e., whether the treasury company can reliably make interest payments.

The key advantage of the Strategy is the use of At-the-Market Offerings (ATM) to fund these payments. Since this is typically only 1%-3% of total market capitalization, the dilution effect and risk introduced are minimal. However, the model still relies on the market liquidity and volatility of Bitcoin and the Strategy's underlying securities.

Ethereum adds another layer of value: native yield generated through staking, re-staking, and lending. This built-in yield provides greater certainty for the payment of preferred stock dividends, which should theoretically lead to a higher credit rating. Unlike Bitcoin, which relies solely on price appreciation, Ethereum's return characteristics combine compound annual growth rates with protocol-layer native yields.

 Figure 4: Ethereum’s annualized native staking income Source: Artemis

I believe that one of the compelling innovations of Ethereum Preferred Stock is that it has the potential to be a non-directional investment vehicle, allowing institutional investors to participate in network security without taking on directional risk in the price of Ethereum. As we highlighted in our Ethereum report, maintaining at least 67% of honest validators is critical to the security of Ethereum. As more assets migrate to the chain, it becomes increasingly important for institutions to actively support the decentralization and security of Ethereum.

However, many institutions may not want to go long Ethereum directly. Ethereum Treasury can act as a middleman, absorbing directional risk while providing institutions with fixed-income-like returns. The preferred shares issued by SBET and BMNR are on-chain fixed-income pledge products designed for this purpose. They can make them more attractive to investors seeking stable returns without taking on all market risks by bundling advantages such as priority inclusion rights for transactions and protocol-level incentives.

Why ATM Is Better for Ethereum Treasury

A widely used valuation metric for crypto treasury companies is mNAV (market value to net asset value). Conceptually, mNAV works similarly to the price-to-earnings (P/E) ratio: it reflects the market's pricing of future growth per share.

Ethereum Treasury inherently deserves a higher mNAV premium due to Ethereum’s native yield mechanism. These activities generate recurring “yields” or increase the value of each Ethereum share without incremental capital. In contrast, Bitcoin Treasury companies must rely on synthetic yield strategies (such as issuing convertible bonds or preferred stocks). Without these institutional products, it is difficult to justify the returns when the market premium of Bitcoin Treasury is close to NAV.

Most importantly, mNAV is reflexive: higher mNAV enables treasury companies to raise capital more efficiently through market offerings. They issue shares at a premium and use the proceeds to buy more of the underlying asset, thereby increasing the asset value per share, reinforcing the cycle. The higher the mNAV, the more value can be captured, which makes market offerings particularly effective for Ethereum treasury companies.

The ability to access capital is another key factor. Companies with deeper liquidity and greater financing capabilities naturally enjoy higher mNAVs, while companies with limited market access tend to trade at a discount. As a result, mNAV often reflects a liquidity premium – the market’s confidence in a company’s ability to efficiently access more liquidity.

How to screen treasury companies from first principles

A helpful mental model is to think of a market offering as a way to raise capital from retail investors, while convertible bonds and preferred stocks are typically designed for institutional investors. Therefore, the key to a successful market offering strategy is to build a strong retail base, which often depends on having a credible and charismatic leader, as well as consistent transparency around the strategy, to convince retail investors of the long-term vision. In contrast, a strong institutional sales channel and relationships with the capital markets sector are required to successfully issue convertible bonds and preferred stocks. Based on this logic, I believe SBET is a stronger retail-driven company, largely due to Joe Lubin's leadership and the team's consistent transparency in terms of Ethereum accumulation per share. Meanwhile, BMNR, led by Tom Lee and with strong ties to the traditional financial industry, seems to be better positioned to tap into institutional liquidity.

Why the Ethereum Treasury is important to the ecosystem and competitive landscape

One of the biggest challenges facing Ethereum is the increasing centralization of validators and staking Ethereum, primarily in liquid staking protocols such as Lido and centralized exchanges such as Coinbase. Ethereum Treasury companies can help balance this trend and promote validator decentralization. To support long-term resilience, these companies should spread their Ethereum across multiple staking providers and become validators themselves when possible.

 Figure 5: Distribution of staking by category Source: Artemis

Against this backdrop, I believe the competitive landscape for Ethereum treasuries will differ significantly from that of Bitcoin treasury companies. In the Bitcoin ecosystem, the market has evolved into a winner-takes-all landscape, with Strategy holding more than 10 times the amount of Bitcoin as the next largest company. It also dominates the convertible bond and preferred stock markets, thanks to its first-mover advantage and strong narrative control.

In contrast, the Ethereum treasury strategy is just getting started. No single entity has yet established a dominant position, instead, multiple Ethereum treasuries are being launched in parallel. This lack of first-mover advantage is not only healthier for the network, but also fosters a more competitive and accelerated market environment. Given the relatively close Ethereum holdings of the major players, I believe a duopoly of SBETBMNR is likely to emerge.

 Figure 6: Ethereum Treasury Company Holdings Source: strategythreserve.xyz

Valuation: A combination of Strategy and Lido

Broadly speaking, the Ethereum Treasury model can be seen as a fusion of Strategy and Lido, built specifically for traditional finance. Unlike Lido, Ethereum Treasury companies have the potential to capture a larger share of asset appreciation because they hold the underlying assets, making the model far superior in terms of value accumulation.

From a rough valuation perspective: Lido currently manages about 30% of the total staked Ethereum, with an implied valuation of over $30 billion. We believe that within a market cycle (4 years), the combined size of SBET and BMNR has the potential to exceed Lido, thanks to the speed, depth, and reflexivity of traditional financial capital flows - as demonstrated by Strategy's growth strategy.

For reference: Bitcoin’s market cap is $2.47 trillion, while Ethereum’s market cap is $428 billion (17%-20% of Bitcoin’s). If SBET and BMNR were to reach around 20% of Strategy’s $120 billion valuation, that would imply a long-term value of around $24 billion. Today, their combined valuation is just under $8 billion, suggesting there is still significant room for growth as Ethereum’s treasury matures.

in conclusion

The convergence of cryptocurrency and traditional finance through digital asset treasuries represents a major transformation, and Ethereum Treasury is now emerging as a powerful force. Ethereum’s unique advantages give Ethereum Treasury companies unique growth potential. Their potential to promote validator decentralization and foster competition further distinguishes them from Bitcoin treasuries. Combining Strategy’s capital efficiency with Ethereum’s built-in returns will unlock tremendous value and drive deeper integration of the on-chain economy into traditional finance. Rapid expansion and growing institutional interest suggest this will have a transformative impact on cryptocurrency and capital markets in the coming years.