Sol Strategies rings the bell for "STKE"

September 9, 2024

Sol Strategies, which was still operating under its original name Cypherpunk Holdings at the time, had not yet undergone a rebranding. It continued to trade on the Canadian Securities Exchange, a market typically reserved for small and micro-cap companies. Just a few months ago, the company appointed former Valkyrie CEO Leah Wald as its new CEO. At that time, Cypherpunk was relatively unknown, with very low investor interest.

At the same time, Upexi focuses on promoting consumer goods for direct sales brands, particularly in areas such as pet care and energy solutions on Amazon. In this crowded market, competition for clicks is exceptionally fierce. DeFi Development Corp (DFDV), then still operating under its old name Janover, was preparing to launch a marketplace connecting real estate syndicators and investors. On the other hand, Sharps Technology is engaged in the production of specialized syringes for healthcare providers, a highly niche area of medical technology that rarely garners the attention of investors.

At that time, these companies were small in scale and ambition. Their total holdings of Solana (SOL) amounted to less than $50 million.

A year later, the situation underwent a tremendous change.

Today, they proudly stand on NASDAQ - the world's second-largest stock exchange - holding over 6 million SOL, with a total value of up to 1.5 billion dollars. This is equivalent to 30 times the value of Solana tokens they held a year ago.

Last week, the bell rung by Nasdaq in New York was not the only iconic event marking the listing of Sol Strategies on the exchange. A virtual bell also rang, signifying the same milestone: STKE officially started trading.

The company invites community members to participate in this ceremony by visiting stke.community and "ringing the bell" through Solana trading. This action will permanently record their participation in this historic moment. In many ways, this marks the "graduation" of Sol Strategies – a company that was previously listed on the Canadian Securities Exchange (under the ticker "HODL") and the OTCQB Venture Market (under the ticker "CYFRF"), which is a stock market for medium-sized enterprises.

I call it "graduation" because entering the NASDAQ Global Select Market is no easy feat. This market is known for its strict standards, typically reserved for blue-chip companies. By passing this test, Sol Strategies achieved what most crypto companies dream of but few can attain — legitimacy.

This is also an important reason for the listing of Sol Strategies, although institutional investors seeking to invest in Solana on Wall Street already have Upexi and DeFi Development Corp available for investment.

Unlike Upexi and DeFi Development Corp, which were public companies before their pivot to Solana fund management, each holding over 2 million SOL, Sol Strategies chose a slower path. It established a validator operation, won institutional authorization for 3.6 million SOL from firms like ARK Invest, passed SOC 2 audits, and strategically positioned itself in the Nasdaq Global Select Market—the top market of that exchange.

Other companies just hold SOL, while Sol Strategies actively operates the infrastructure that supports it, turning these holdings into viable business.

I conducted an in-depth study of the balance sheet of Sol Strategies to understand the story behind the numbers.

For the quarter ending June 30, Sol Strategies reported revenue of CAD 2.53 million (approximately USD 1.83 million). While this figure may seem ordinary on its own, the real story is hidden in the details. This revenue comes entirely from the staking of approximately 400,000 SOL and the validators operating to protect the Solana network, rather than from traditional product sales. The second-hand business in non-cryptocurrency has hindered Upexi's growth, while DFDV is heavily reliant on ongoing financing to drive growth, with 40% of its revenue still coming from its non-cryptocurrency real estate business.

By providing validator-as-a-service, Sol Strategies has opened up new revenue streams from its Solana fund management business. This approach offers a steady income without the burden of increasing debt or traditional overhead.

Sol Strategies represents its institutional clients' entrustment of SOL, including the authorization of 3.6 million SOL obtained from Cathie Wood's ARK Invest in July. The commissions from these entrustments generate a stable revenue stream. Whether referred to as earnings or fees, from an accounting perspective, it is income - something that many cryptocurrency fund managers fail to reflect.

Solana validators typically charge a staking reward commission of about 5%-7%. Since the underlying staking yield hovers around 7%, these delegated tokens generate approximately 0.35%-0.5% of nominal value per year for validators. Based on 3.6 million SOL (which is over $850 million at current prices), this means annual fee income exceeds $3 million, not including any price increases or earnings from Sol Strategies' own funds. This effectively serves as an additional income source, surpassing half of the staking rewards from their own holdings of 400,000 SOL, which are entirely created from funds contributed by others.

However, Sol Strategies reported a net loss of 8.2 million Canadian dollars (approximately 5.9 million US dollars) for the third quarter. However, if we exclude one-time expenses such as the amortization of the acquisition of validator intellectual property, stock-based compensation, and listing costs, the cash flow from its operations was positive.

What truly sets Sol Strategies apart from its competitors is its perspective on Solana. For the company, the product is not just the Solana token, but the entire Solana ecosystem. This unique viewpoint is both innovative and strategic, making Sol Strategies stand out in the field.

The more delegators attracted by Sol Strategies, the more secure the network becomes. As its validators are deemed reliable, this will attract more delegations. Every user who stakes to Sol Strategies nodes is both a customer and a co-creator of its revenue, transforming community engagement into a measurable driving force of shareholder value. This approach makes every participant feel invested in the company's success.

This is likely the most important factor that gives Sol Strategies an edge in competing with peers holding more Solana tokens.

Currently, at least seven listed companies control 6.5 million SOL, with a total value of approximately 1.56 billion dollars, accounting for about 1.2% of the total supply.

In the competition for capital management on Solana, each company is vying to become the preferred agent for investors choosing to expose themselves to Solana. Each company's strategy varies slightly: Upexi acquires SOL through discounts, DFDV bets on global expansion, while Sol Strategies focuses on diversified asset reserves. The goal is the same: to accumulate SOL, stake it, and sell packaged products to Wall Street.

The road for Bitcoin to Wall Street is paved by companies like MicroStrategy, which has transformed from a software business into a leveraged BTC asset management company and achieved this through an extremely successful spot ETF. Ethereum has also followed a similar path, with companies like BitMine Immersion, Joe Lubin's SharpLink Technologies, and the recent spot ETF. For Solana, I expect adoption to be primarily achieved through operational companies within the network. These companies not only hold assets but also operate validators, earning fees and staking rewards, and releasing quarterly earnings. This model is closer to active management rather than an ETF.

It is precisely this combination of asset net value appreciation and actual cash flow that may persuade investors to invest in this manner. If Sol Strategies is successful, it could become the Solana version of "BlackRock."

The relationship between Wall Street and Solana will become closer in the future.

Sol Strategies is exploring the possibility of tokenizing its own shares on the blockchain. Imagine STKE stocks not only existing on Nasdaq but also as tokens based on Solana, which can be exchanged in DeFi pools and settled instantly with USDC. A stock listed on Nasdaq trading simultaneously on-chain would be a bridge that ETFs cannot cross. Currently, this is still speculative, but it is moving towards eliminating the boundaries between public equity and crypto assets.

However, this is not an easy task. The "graduation" from Nasdaq has also brought new challenges, and Sol Strategies has taken on greater responsibilities.

Poor validator performance or lack of governance steps may immediately trigger investor feedback. Sol Strategies has decided to bet on the Solana ecosystem, rather than just the Solana token itself, which may carry greater risks and corresponding rewards. Solana itself is also facing network outages and competition from emerging blockchains. If stock investors find that the stock is trading well below its net asset value, arbitrageurs may sell off, ignoring the fundamentals.

Nonetheless, I believe that the listing of Sol Strategies on the Nasdaq represents the best opportunity for Solana to take a front-row seat on Wall Street. Can you package on-chain funds into investment products and then integrate them into Nasdaq? Sol Strategies now bears this daunting responsibility.