New Trends in Cryptocurrency Treasury Strategies: The Rise of Ethereum Treasury

Recently, the integration of cryptocurrency and traditional securities has become the focus of market attention, a trend reflected in the surge of public market interest in corporate crypto asset treasury. Although the crypto community has long advocated for tokenization and on-chain assets as a means to enhance accessibility, the most significant advancements have actually come from this integration.

The companies that first implemented this strategy pushed their market value to over $100 billion, with increases even surpassing Nvidia. The core logic of these financial strategies is that going public can obtain unsecured leverage at a lower cost, which is difficult for ordinary traders to achieve.

Recently, people's attention has expanded from Bitcoin to the Ethereum space. Treasury strategies based on Ethereum are increasingly gaining attention. So, is the Ethereum treasury really reasonable? Essentially, companies are trying to arbitrage between the long-term compound annual growth rate of the underlying asset and their own capital costs. Ethereum, as a scarce and programmable reserve asset, plays a fundamental role in ensuring economic security on-chain as more assets migrate to the blockchain network. This article will explain why the Ethereum treasury has a bullish trend and provide operational advice for companies adopting this financial strategy.

Obtaining Liquidity: The Cornerstone of Treasury Companies

One of the main reasons token and protocol creators seek to establish these treasury companies is to provide tokens with access to liquidity in traditional finance, especially in the context of declining liquidity for altcoins in the cryptocurrency market. Typically, these treasury strategies acquire unsecured, non-redeemable liquidity or debt to purchase more assets in three ways:

1. Convertible Bonds: Issuing debt that can be converted into stock to raise funds for purchasing more encryption assets.
2. Preferred Stock: Issuing preferred stock that pays investors a fixed annual dividend to raise funds.
3. Market Price Issuance (ATM): Directly selling new shares on the public market to raise flexible real-time funds for purchasing encryption assets.

Advantages of Ethereum Convertible Bonds

Ethereum's higher historical volatility and implied volatility compared to Bitcoin are its key advantages. The Ethereum Treasury Company naturally reflects this higher volatility in its capital structure by issuing Ethereum convertible bonds, making it particularly attractive to arbitrageurs and hedge funds. This volatility also allows the Ethereum Treasury to sell convertible bonds at higher valuations, obtaining more favorable financing conditions.

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

However, it is important to note that if Ethereum is unable to maintain a long-term compound annual growth rate, the appreciation of the underlying asset may not be sufficient to support the conversion before maturity. In this case, the Ethereum treasury company will face the risk of full bond repayment. In contrast, the likelihood of such downside risk occurring with Bitcoin is relatively low.

The Differentiated Value of Ethereum Preferred Stock Issuance

Unlike convertible bonds, preferred stock issuance is primarily aimed at fixed income asset classes. Ethereum adds an extra layer of value: the native yields generated through staking, re-staking, and lending. This built-in yield provides greater certainty for paying preferred stock dividends and should theoretically lead to higher credit ratings.

One of the innovations of Ethereum preferred stock is that it has the potential to be a non-directed investment vehicle, allowing institutional investors to participate in cybersecurity without taking on the directional risk of Ethereum's price. As more assets migrate on-chain, it is becoming increasingly important for institutions to actively support Ethereum's decentralization and security.

Ethereum treasury companies can act as intermediaries, absorbing directional risks while providing institutions with returns similar to fixed income. Some companies issue preferred stocks specifically designed for this purpose as on-chain fixed income staking products, which can bundle transaction priority rights, protocol-level incentives, and other advantages, making them more attractive to investors seeking stable returns without taking on the full market risks.

Advantages of Market Price Issuance (ATM) for Ethereum Treasury

For cryptocurrency treasury companies, mNAV (Market Value to Net Asset Value Ratio) is a widely used valuation metric. Ethereum treasuries should inherently enjoy a higher mNAV premium, thanks to Ethereum's native yield mechanism. These activities can generate recurring "yields" or increase the value per Ether without the need for incremental capital.

mNAV is reflexive: a higher mNAV allows treasury companies to raise funds more effectively through market price issuance. They issue shares at a premium and use the proceeds to purchase more underlying assets, thereby increasing the asset value per share and reinforcing this cycle. The higher the mNAV, the more value can be captured, making market price issuance particularly effective for Ethereum treasury companies.

Filter treasury companies from first principles

Market price issuance can be seen as a way to raise capital from retail investors, while convertible bonds and preferred stocks are typically designed for institutional investors. The key to a successful market price issuance strategy is to establish a strong retail base, which often depends on having a credible and charismatic leader, as well as ongoing transparency around the strategy. In contrast, successfully issuing convertible bonds and preferred stocks requires strong institutional sales channels and relationships with capital markets departments.

The Impact of Ethereum Treasury on the Ecosystem and Competitive Landscape

One of the biggest challenges facing Ethereum is the increasing centralization of validators and staked Ether. Ethereum treasury companies help to balance this trend and promote validator decentralization. To support long-term resilience, these companies should distribute their Ether across multiple staking providers and, where possible, become validators themselves.

The competitive landscape of Ethereum treasuries may differ significantly from that of Bitcoin treasury companies. In the Bitcoin ecosystem, the market has evolved into a winner-takes-all scenario. In contrast, the treasury strategies of Ethereum are just beginning, with no single entity having established dominance yet. This lack of first-mover advantage not only benefits the health of the network but also fosters a more competitive and accelerated market environment.

Valuation Outlook

In a broad sense, the Ethereum treasury model can be seen as a fusion of Bitcoin treasury and liquid staking protocols, specifically designed for traditional finance. Unlike liquid staking protocols, Ethereum treasury companies have the potential to capture a larger share of asset appreciation because they hold the underlying assets, making this model far superior in terms of value accumulation.

From a valuation perspective, some major liquid staking protocols currently manage about 30% of the total staked Ethereum, with an implied valuation of over $30 billion. Within a market cycle (4 years), the total scale of major Ethereum treasury companies could exceed these protocols, thanks to the speed, depth, and reflexivity of traditional financial capital flows.

If the scale of the main Ethereum treasury company reaches about 20% of the leading Bitcoin treasury company's valuation of 120 billion USD, it means its long-term value is approximately 24 billion USD. Currently, their total valuation is slightly below 8 billion USD, indicating that there is still significant growth potential as the Ethereum treasury matures.

Conclusion

The integration of cryptocurrency and traditional finance through digital asset vaults represents a significant transformation, with Ethereum vaults now becoming a powerful force. Ethereum's unique advantages provide Ethereum vault companies with distinct growth potential. Their potential to facilitate the decentralization of validators and nurture competition further distinguishes them from Bitcoin vaults. Combining the capital efficiency of Bitcoin vaults with the built-in yields of Ethereum will unlock tremendous value and drive the on-chain economy deeper into traditional finance. Rapid expansion and growing institutional interest indicate that this will have a transformative impact on cryptocurrency and capital markets in the coming years.