Why is it said that the ETH treasury can rise more than Strategy? How to choose between the two giants SBET and BMNR?

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This article is from: Penn Blockchain Co-Investment Director Kevin (@kevinlhr 88)

Compiled by｜Odaily Planet Daily (@OdailyChina); Translator｜Azuma (@azuma_eth)

Although the crypto community has long been enthusiastic about bringing traditional assets onto the blockchain in tokenized form, the most significant recent progress actually comes from the reverse integration of crypto assets into traditional securities. The recent public market's enthusiasm for "crypto asset treasury" stocks perfectly illustrates this trend.

Michael Saylor was the first to adopt this strategy through MicroStrategy (MSTR), which led to his company's market value exceeding $100 billion, with a growth rate even surpassing that of Nvidia during the same period. We conducted a detailed analysis in our special report on MicroStrategy (which is excellent learning material for newcomers in the treasury field). The core logic of such treasury strategies is that public companies can access low-cost, unsecured leverage that ordinary traders cannot.

Recently, the market's focus has shifted from the BTC treasury to the ETH treasury, such as Sharplink Gaming (SBET) led by Joseph Lubin and BitMine (BMNR) helmed by Thomas Lee.

But is the ETH treasury really reasonable? As we argued in the MicroStrategy analysis report, treasury-type companies are essentially trying to arbitrage the difference between the long-term compound annual growth rate (CAGR) of the underlying assets and the cost of capital. In earlier articles, we outlined our views on the long-term compound growth rate of ETH: As a programmable scarce reserve asset, ETH plays a fundamental role in maintaining on-chain economic security as more assets migrate to blockchain networks. This article will explain the bullish logic of the ETH treasury in a broad sense and provide operational advice for enterprises adopting this strategy.

Liquidity Acquisition: The Cornerstone of Treasury Companies

One of the main reasons for tokens and protocols seeking to create these treasury-type companies is to open pathways for tokens to access traditional financial (TradFi) liquidity — especially against the backdrop of shrinking liquidity in altcoins. These treasury companies primarily obtain liquidity to increase their assets in three ways. It is worth noting that this liquidity/debt is all unsecured, meaning it cannot be redeemed in advance.

Convertible Bonds: Financing through the issuance of debt that can be converted into stock, with the proceeds used to purchase more cryptocurrencies;
Preferred Stock: Financing through the issuance of preferred stock that pays a fixed annual dividend;
Market Issuance (ATM): Directly sell new shares on the open market to obtain flexible real-time funds for purchasing cryptocurrency.

Advantages of Convertible Bonds for ETH

In our previous research on MicroStrategy, we pointed out that convertible bonds offer two major conveniences for institutional investors:

Downside protection and upside opportunity: Allows institutions to gain exposure to underlying assets (such as BTC or ETH) under the inherent protective features of bonds;
Volatility-driven arbitrage opportunities: Hedge funds often profit from the volatility of the underlying assets and their securities through gamma trading strategies.

Among them, gamma traders (hedge funds) have become the dominant force in the convertible bond market. Compared to BTC, ETH has a higher historical volatility and implied volatility. The convertible bonds (CB) issued by ETH treasury companies naturally reflect this high volatility in their capital structure, making them more attractive to arbitrageurs and hedge funds. More importantly, this volatility allows ETH treasury companies to issue convertible bonds at higher valuations, obtaining more favorable financing conditions.

Odaily Note: Comparison of historical volatility between ETH and BTC.

For convertible bondholders, higher volatility means an increased opportunity to profit through gamma strategies. In short, the greater the volatility of the underlying asset, the more substantial the gamma trading profits, which makes convertible bonds in the ETH treasury more advantageous compared to those in the BTC treasury.

Odaily Note: Comparison of historical volatility of SBET, BMNR, and MSTR.

However, it is important to note a key premise - if ETH cannot maintain long-term annual compound growth, the appreciation of the underlying asset may not be sufficient to meet the conversion conditions before maturity. At this point, the treasury company will face the risk of full repayment. In contrast, BTC, with its more mature long-term performance, has a lower probability of this situation occurring for its convertible bonds - historical data shows that most convertible bonds under this strategy eventually achieved conversion.

Odaily Note: Comparison of the four-year CAGR of ETH and BTC.

The Special Value of ETH Preferred Shares

Unlike convertible bonds, preferred stocks are designed specifically for fixed-income investors. Although some convertible preferred stocks have mixed upside potential, the yield is still the primary consideration for most institutional investors. The pricing of these instruments is based on credit risk - that is, whether the treasury company can reliably pay interest.

The key advantage of MicroStrategy's strategy lies in using ATM issuance to pay interest. Since this typically only accounts for 1-3% of the market value, the dilution risk is minimal; however, this model still relies on the market liquidity and volatility of BTC and MicroStrategy's underlying securities.

ETH can generate native returns through staking, re-staking, and lending, which provides stronger certainty for preferred dividend payments and should theoretically achieve a higher credit rating. Unlike BTC, which solely relies on price appreciation, ETH's returns combine the long-term annual compounded growth expectations with the native returns at the protocol level.

Odaily Note: ETH native staking annualized yield situation.

The innovative idea I propose is: ETH preferred shares can serve as a non-directional investment tool, allowing institutions to participate in network security maintenance without bearing ETH price risks. As we emphasized in the ETH report, maintaining at least 67% honest validators is crucial for network security. As more assets go on-chain, it becomes increasingly important for institutions to actively support the decentralization and security of Ethereum.

Many institutions may be reluctant to go long on ETH directly, but ETH treasury companies can serve as intermediaries—absorbing directional risks while providing institutions with returns similar to fixed income. The on-chain preferred stocks issued by SBET and BMNR are precisely designed fixed income staking products for this purpose, which can be made more attractive to investors seeking stable returns without wanting to bear all market risks through bundled protocol layer incentives and other methods.

The Special Advantages of ATM Issuance for the ETH Treasury

The key valuation metric for treasury companies, mNAV (Market Value to Net Asset Value Ratio), is conceptually similar to the price-to-earnings ratio and reflects the market's pricing of future growth per share of assets. ETH treasury enjoys a higher mNAV premium due to its native yield mechanism — these activities can generate sustainable 'yields' or increase the corresponding ETH amount per share without additional capital. In contrast, BTC treasury companies must rely on synthetic yield strategies (such as issuing convertible bonds or preferred stocks), making it difficult to justify any yield when the market premium approaches NAV.

More importantly, mNAV is reflexive — a higher mNAV enables treasury companies to raise capital in a more value-added way through ATM issuance. They issue stocks at a premium and increase their underlying assets, enhancing the asset value per share, creating a positive cycle. The higher the mNAV, the stronger the value capture ability, making ATM issuance particularly effective for ETH treasury companies.

Capital acquisition is another key factor. Companies with deeper liquidity and broader financing capabilities naturally achieve higher mNAV, while companies with limited market access tend to trade at a discount. Therefore, mNAV typically reflects the liquidity premium — that is, the market's confidence in the company's ability to effectively acquire more liquidity.

Screening of Financial Repositories Based on First Principles

ATM issuance can be viewed as financing for retail investors, while convertible bonds and preferred stocks are typically aimed at institutional investors. Therefore, the key to a successful ATM strategy lies in establishing a strong retail base, which often requires credible and charismatic spokespersons, as well as ongoing transparent strategic disclosures to gain long-term trust from retail investors. In contrast, convertible bonds and preferred stocks require sound institutional sales channels and relationships with capital markets departments. By this logic, I believe SBET has a greater advantage in being retail-driven (thanks to Joe Lubin's leadership and the team's ongoing transparency in increasing each share of ETH), while BMNR is more likely to access institutional liquidity due to Tom Lee's deep connections in traditional finance.

The Ecological Significance and Competitive Landscape of the ETH Treasury

One of the biggest challenges facing Ethereum is the increasing centralization of validators and staked ETH (mainly in liquid staking protocols like Lido and centralized exchanges like Coinbase). The ETH treasury helps to offset this trend and promote the decentralization of validators. To enhance long-term resilience, these enterprises should distribute ETH across multiple staking service providers and operate their own validation nodes where possible.

Odaily Note: Distribution of Ethereum's staking categories.

In this context, I believe the competitive landscape of ETH treasury companies will be fundamentally different from that of BTC treasury companies. The Bitcoin ecosystem has formed a winner-takes-all situation (MicroStrategy's holdings are more than 10 times that of the second-largest corporate holder), dominating the convertible bond and preferred stock markets thanks to its first-mover advantage and strong narrative control. In contrast, the ETH treasury is starting from scratch, without a single dominant entity, with multiple projects developing in parallel. This lack of first-mover advantage not only creates a healthier network but also fosters a more competitive and accelerated development environment. Given that the ETH holdings of leading companies are similar, SBET and BMNR are likely to form a duopoly.

Odaily Note: Comparison of ETH Treasury Company's Position.

Valuation Framework: The Combination of MicroStrategy and Lido

In a broad sense, the ETH treasury model can be seen as a fusion of MicroStrategy and Lido designed specifically for traditional finance. Unlike Lido, ETH treasury enterprises can capture a larger proportion of asset appreciation due to their holding of underlying assets, making them far superior in terms of value accumulation compared to the former.

Here is a rough valuation reference: Lido currently manages about 30% of ETH staking, with an implied valuation of over 30 billion USD. We believe that within a market cycle (4 years), SBET and BMNR have the potential to surpass Lido in combined scale, driven by the speed, depth, and reflexivity of traditional financial capital flows (as demonstrated by MicroStrategy's growth strategy).

To add another background data point, the market capitalization of Bitcoin is $2.47 trillion, while Ethereum is $428 billion (accounting for 17-20% of Bitcoin). If SBET and BMNR reach 20% of MicroStrategy's $120 billion valuation, their long-term value would be around $24 billion. Currently, the combined valuation of the two is less than $8 billion, and with the maturation of the ETH treasury, there is significant room for growth.

Conclusion

The emergence and development of digital asset treasury is a significant evolution in the further integration of the crypto market and traditional finance, with ETH treasury becoming a strong new force. The unique advantages of Ethereum (including higher convertible bond volatility and native yields from preferred stocks) create differentiated growth opportunities for treasury companies. Its ability to promote validator decentralization and stimulate competition further distinguishes it from the BTC treasury bond ecosystem.

The combination of MicroStrategy's capital efficiency and embedded ETH yields can unlock tremendous value and push on-chain economics deeper into traditional finance. Rapid expansion and increasing institutional interest indicate a transformative impact on crypto and capital markets in the coming years.