Inside Upexi’s SOL play: staking yield and locked token deals

Upexi is the most important public firm holding Solana tokens and makes use of a SOL technique to construct its holdings and generate further income via staking. In an interview with crypto.information, Upexi CEO Allan Marshall explains why the corporate executed a big fairness personal placement to construct a crypto treasury, citing MicroStrategy’s playbook and a extra accommodating U.S. coverage backdrop.

Upexi markets itself as a “new institutional gateway to Solana’s (SOL) velocity, scale, and quickly rising ecosystem.” However it isn’t alone, because it joins a handful of rival corporations additionally constructing Solana treasuries, whereas dozens of different public entities are specializing in different cash.

Talking to crypto.information, Marshall discusses technique and market notion. He notes that Upexi is concentrated on accretive capital raises, staking, and discounted, locked SOL purchases fairly than enterprise investing. He additionally discusses how the corporate measures progress via an “adjusted SOL per share” metric designed to take away timing and leverage results.

We additionally talk about the corporate’s threat administration methods, which embrace a buy-and-hold method, no hedging, disciplined use of leverage, and custody with certified suppliers.

Your entire interview transcript is under:

crypto.information: Upexi is now the most important company holder of Solana with over 2 million SOL in treasury. Why did you make such a dramatic shift now? Was there one thing particular that occurred up to now few months that gave you the boldness to commit so closely to a crypto treasury at the moment?

Allan Marshall: Upexi did the primary large-scale fairness personal placement to create an altcoin treasury, and there have been two key objects that led us to undertake this technique.  First was a rising appreciation for all the worth that MicroStrategy has created, because it has been the perfect performing inventory within the US because it adopted a Bitcoin treasury technique in August 2020.  Second was a extra accommodative US administration, which moved from a headwind to a tailwind and gave us rising confidence that such a method would work.

CN: With so many crypto belongings out there, what makes you consider SOL is the perfect reserve asset for Upexi’s wants? Did you think about any alternate options, and if that’s the case, what distinctive benefits did Solana supply that others didn’t?

AM: We view Bitcoin as the perfect financial asset and Solana as the perfect excessive efficiency blockchain.  Going with Solana over Bitcoin not solely enabled us to be a primary mover fairly than a follower, but in addition enabled us to be underpinned by an asset with extra potential upside, all else equal, with Solana’s market cap at simply 5% that of Bitcoin’s.  As well as, being underpinned by Solana permits further methods to create worth, resembling staking to earn an 8% yield making the treasury right into a productive asset in addition to shopping for locked Solana at a reduction for built-in positive aspects for shareholders.

CN: Upexi is sitting on an unrealized achieve of $142 million. Are you able to present a breakdown of this determine, for instance, how a lot got here from SOL’s worth appreciation versus strategic actions you took, resembling shopping for discounted tokens or incomes staking yield?

We have now not reported it damaged down however the achieve is a mixture of all of the instruments now we have to create worth. Staking, SOL appreciation from early and strategic shopping for each liquid and locked tokens. 

You mainly invented a brand new monetary metric, “adjusted SOL per share,” to measure your treasury efficiency. How precisely is that this metric calculated, and why do you assume it’s a greater indicator of worth creation than the extra acknowledged SOL per share and even NAV? In sensible phrases, what precisely does the present 0.0197 adjusted SOL per share determine inform buyers?

We detailed the adjusted SOL per share metric within the desk from a [Sept 11] press launch.  We consider this can be a higher metric than a primary adjusted SOL per share because it adjusts for objects that may closely skew such a calculation resembling funding timing and leverage.  For instance, an organization can elevate $100m, purchase $1m of SOL one month, and purchase $99m of SOL the next month to assert their primary SOL per share elevated by 99x over that point, however this was extra as a result of small preliminary buy than resulting from worth creation.  The corporate might then borrow $100m and purchase SOL with it in a subsequent month to assert their SOL per share then doubled, although this was resulting from leverage fairly than the principle worth accrual mechanisms.  Our adjusted SOL per share metric adjusts for objects like these to measure the worth creation from accretive issuances, staking, and discounted locked SOL purchases.

The 0.197 adjusted SOL per share tells buyers how a lot in adjusted SOL is underlying every share of Upexi widespread fairness.  The investor can see how this develops over time to measure the efficacy of Upexi’s treasury administration operations, and may convert the adjusted SOL per share by multiplying by the worth of SOL to see how a lot of a premium our inventory is buying and selling at relative to the worth of our cryptocurrency (on an adjusted foundation).

CN: Over 53% of your SOL holdings are locked tokens that had been bought at a mid-teens low cost to identify costs. Are you able to clarify what these locked tokens are and why Upexi selected to purchase locked tokens at a reduction? What advantages and dangers do locked tokens deliver by way of built-in positive aspects for shareholders, and the way lengthy earlier than these tokens turn into liquid?

AM: Solana Basis bought tokens to buyers, usually cryptocurrency enterprise capital corporations, early on to boost cash for issues like protocol improvement and for developer grants.  Nevertheless, because it was nonetheless early on in Solana’s improvement, these tokens had been locked. Therefore, buyers should not ready to make use of them freely in DeFi and they don’t commerce on an trade (solely OTC).  Upexi is ready to purchase locked tokens at a mid-teens low cost, that vest and turn into liquid on a month-to-month foundation, typically via January 2028.  As we don’t plan to promote Solana, there isn’t a motive for us to not purchase locked tokens to make the most of the low cost for buyers.  Furthermore, locked tokens nonetheless early the ~8% staking yield, and when the mid-teens low cost is put into yield-equivalent phrases, we’re practically doubling the staking yield.  So shopping for locked Solana at a reduction is an effective way for us to nice built-in positive aspects for shareholders and enhance the staking yield in a risk-prudent method.

CN: It goes with out saying that holding any single-asset crypto treasury comes with volatility. How do you method threat administration to your SOL holdings? Do you hedge for draw back safety, or are you all in with full confidence that downturns will reverse? In additional sensible phrases, how do you reassure buyers that the corporate received’t overexpose itself if Solana faces a significant correction?

AM: We have now a purchase and maintain technique, and given our view that Solana will typically enhance over the medium-term, we purchase when now we have the funds to take action and we don’t hedge.  We search to maximise worth for shareholders in a risk-prudent trend, so we is not going to tackle an excessive amount of leverage, we is not going to do loopy degen buying and selling onchain, and we solely use certified custodians whereas diversifying amongst them.  We consider this not solely positions us nicely for any market surroundings, however can be a method that resonates with each crypto and conventional buyers alike.

CN: Does Upexi have any plans to maneuver past merely holding SOL? For instance, are there benefits to investing in tasks or builders throughout the Solana ecosystem to enhance your SOL holdings? Or do you see focus in Solana as core to your technique?

AM: We shouldn’t have any plans to maneuver past holding and staking spot and locked Solana and fascinating in accretive capital issuances. We consider the three worth accrual mechanisms of accretive raises, staking, and discounted locked Solana purchases are so highly effective that it doesn’t make sense to deviate from that in any respect.

CN: Upexi’s inventory trades at round 0.7 occasions its primary NAV of the SOL treasury. Why do you assume the market is valuing Upexi at a reduction to its crypto holdings? What steps could be taken to shut that valuation hole in order that the inventory worth higher displays the underlying holdings? I noticed that SharpLink introduced a share buyback program as an acknowledgment that its inventory is under its NAV. Would you think about an analogous transfer?

AM: There are a selection of things that make a primary mNAV calculation deceptive, and as such, we don’t consider that it represents the true underlying valuation that the market is ascribing to the corporate.  Right here, now we have printed a “Absolutely-Loaded mNAV” metric that adjusts for objects like leverage, money available, pre-funded warrants, and so on., and we consider is probably the most correct valuation measure for Upexi.  Right here, we’re at present buying and selling at 1.4x.

CN: I observed that administration has been energetic at investor conferences, together with displays at Needham, Canaccord, and H.C. Wainwright. Are you able to talk about how conventional finance audiences and buyers are reacting to your crypto treasury technique? What are the most typical questions or issues you hear from institutional buyers and analysts?

AM: The information stage of conventional buyers varies fairly significantly, with lots of them trying into cryptocurrencies and crypto-related shares for the primary time.  As such, the most typical query we obtain is ‘what’s the distinction between Solana and Bitcoin?”.  One other widespread query we get is “why Solana?”.  All that stated, conventional buyers do admire how highly effective the mannequin is and that cryptocurrencies might have extra optimistic than destructive catalysts, resembling incoming US market construction laws, all coming collectively to supply what is probably going a really uneven risk-reward in our inventory.

CN: Upexi joins a fast-growing checklist of public corporations embracing a crypto treasury technique. What do you assume is driving this wave of company crypto treasury methods? How does Upexi’s method evaluate to the OG on this technique, which was the primary to hoard Bitcoin?

AM: Upexi did the primary large-scale fairness personal placement for an altcoin treasury, and since there have been over 150 to comply with.  The recognition of the mannequin is probably going coming from the success of corporations like Upexi, which is making extra corporations wish to undertake related methods and buyers trying to make outsized returns. 

Upexi employs MicroStrategy’s principal worth accrual mechanism in accretive capital issuances, but in addition provides others resembling staking to earn an 8% yield making the treasury a productive asset and shopping for locked Solana at a reduction for built-in positive aspects for shareholders.  We’re additionally underpinned by an asset that we consider will equally be an end-game winner, however at simply 5% the dimensions, so our view is that there’s far more  potential upside in our treasury asset than for MicroStrategy.

CN: And final, as a follow-up to the prior query, are you involved that that firm’s exclusion from the S&P 500 index invalidates the funding thesis that resonated nicely with conventional inventory buyers?

AM: No, we aren’t involved.  The S&P Index Committee has discretion on which corporations it provides to the index, and MSTR should still be added sooner or later.  It has added different corporations that personal Bitcoin up to now like COIN and SQ. We don’t assume the truth that it wasn’t added through the latest quarterly rebalancing means a lot.