The Funding: Crypto VCs discuss the next phase of DATs amid rising buybacks

In earlier editions, I wrote about why crypto VCs  backed  digital asset treasury (DAT) firms, how that wave  reshaped  startup funding, and whether the  DAT boom had peaked . At the time, investors warned about compression in net asset value multiples (mNAVs) and expected consolidation, which has already begun with deals like Strive’s  acquisition  of Semler Scientific and is likely to continue. This edition looks at  buybacks , now in sharper focus as more firms use them to narrow NAV discounts and support share prices. In ETHZilla’s case, it even  sold  $40 million of its ETH last week to fund a buyback. Is that a warning sign — and what comes next for the category?

ETHZilla’s sale raised questions about whether DATs might start offloading the very assets they were created to hold. Most VCs I spoke to said that’s unlikely — management teams aren’t being forced to sell and will avoid it unless valuations drop to deep discounts. For now, the ETHZilla sale looks like a one-off attempt to close a NAV gap, not a broader shift, according to VCs.

"Not necessarily a red flag but an uncommon move," Quynh Ho, head of venture investment at GSR, said of the ETHZilla sale. "Selling a portion of ETH to repurchase shares can be a rational move if the stock trades at a deep discount to NAV. Effectively arbitraging value back to shareholders."

Cosmo Jiang, general partner at Pantera Capital, said buybacks are an important tool when used with discipline, but Michael Bucella, co-founder of Neoclassic Capital, warned that selling core assets for buybacks only works for liquid holdings like bitcoin, ether, or solana; for smaller tokens, it risks a “death spiral.”

"This is why it's critical to have foundation involvement in the longer tail DATs," Bucella said.

Most VCs said concern should only arise if major DATs began selling their holdings. "It only becomes serious if mNAVs for large DATs start trading at steep discounts," said Ray Hindi, co-founder and managing partner of L1D. "Things become really volatile if BMNR [BitMine] or MSTR [Strategy] start trading at steep discounts (30%+) as it will attract sophisticated players that don’t care about crypto (activist hedge funds)."

Brian Rudick, chief strategy officer of Solana DAT Upexi, agreed that modest discounts aren’t alarming and said DATs have multiple ways to close valuation gaps — from borrowing to fund buybacks to merging with peers or converting to ETFs. He added that mNAVs could normalize in a stronger market and that yield-generating treasuries can still compound NAV even when issuance slows.

The 'DAT death spiral' scenario

A true “DAT death spiral,” VCs said, would look like prolonged sub-NAV trading leading to accelerated treasury selling, falling NAV, and mounting pressure on the shares. Early warning signs, they said, would include: shrinking treasury transparency, repeated ad-hoc buyback announcements, or unfavourable convert terms. 

"A DAT death spiral is more likely to be brought on by over-leverage, where a treasury company has dollar-denominated debt that comes due while the price of its cryptocurrency has fallen, necessitating the treasury company to sell cryptocurrency to repay debt at an inopportune time," said Rudick. As such, investors should pay close attention to the amount of leverage a DAT takes on, he added.

For investors, the key test now is capital discipline — how management allocates funds and communicates with shareholders. Debt issuance with "predatory" terms and lack of involvement by the original management team would be the biggest concerns, according to Hindi.

Over time, a DAT also has a higher cost basis to just hold digital assets; if they do not manage to utilize those assets efficiently (e.g. earn yield) to make up for those costs, their asset basis will erode from asset management fees, operating company fees and other costs involved with maintaining the vehicle. "This is ultimately the bear case for a DAT,"  said Mathijs van Esch, general partner at Maven 11.

The road ahead

Investors said DATs should ultimately be seen as actively managed funds. A DAT with good execution has the potential to meaningfully outperform the underlying, just like a well-executed active fund has the potential to outperform the underlying, said Jiang of Pantera Capital. "As is the case with all startups and businesses, most DATs will underperform — that is the natural equilibrium of capitalism. But some DATs will go on to become incredible outcomes," according to Jiang.

Richard Galvin, executive chairman and chief investment officer at Digital Asset Capital Management, expects DATs to become more "active." He said the fundraise  announced  by the NEAR DAT last week is a good example. "This DAT will also support the NEAR network by building/owning infrastructure," he said. "I think this is a much more sustainable model, as it provides the potential for ongoing earnings and value accrual outside of the token treasury in the DAT, and therefore moves valuations away from a straight, passive NAV-look-through."

Meanwhile, according to van Esch, a DAT for a "utility" token with a dollar-denominated yield, "for example, stablecoin issuance or having a front end that acquires fees through builder codes," is more sustainable. As it will have access to dollar income to acquire and support the underlying asset, he said.

Overall, as Bucella of Neoclassic Capital put it, "Teams that turned a 'trade' into a public company will be in trouble. Those with a real strategy and are showing signs of execution on that strategy should win."