Shifting Funding Strategies and Investor Risks
Small-cap companies are increasingly utilizing in-kind cryptocurrency contributions to fund their digital-asset treasuries (DATs) as an alternative to traditional cash-raising methods. This trend is raising significant concerns about the increased risk exposure for retail shareholders.
With diminishing interest from traditional investors, executives at smaller firms are opting to contribute their own cryptocurrency holdings directly, rather than raising cash to purchase tokens on the open market. A primary issue with this approach is the frequent use of unlisted or difficult-to-value tokens, which places retail investors in a precarious position.
In 2025, numerous small companies, particularly those in the biotech and mining sectors, underwent transformations to become digital-asset proxies. In these structures, sponsors either provide crypto tokens directly or raise funds to acquire them. The company's stock then effectively trades as a speculative bet on the performance of these digital assets. For company insiders, this offers a straightforward path to liquidity, while for investors, it represents a gamble on potential future profits.
Earlier DAT transactions typically involved raising capital to purchase tokens through established markets, which provided a degree of independent price validation. However, in-kind contributions bypass this crucial mechanism. This allows insiders to unilaterally determine the token's valuation, sometimes even before it commences public trading. Consequently, the pricing and trading risks are shifted directly onto the shareholders, predominantly retail investors. This shift is contributing to a decline in investor confidence, with many DATs now trading at a valuation lower than the cryptocurrency they hold.
High-Risk Examples Illustrating the Trend
This year has seen several concerning examples that highlight the inherent risks associated with this funding strategy. One notable case is Tharimmune Inc., a biotech firm that transitioned into a crypto proxy. The company raised $545 million, with approximately 80% of these funds designated for the purchase of Canton Coins. A significant portion of this investment, about 80%, was composed of unlisted tokens initially valued at 20 cents. Following its public trading debut on November 10, the token's value has since fallen to around 11 cents.
Further examples include Alt5 Sigma Corp., which secured $1.5 billion, with half of that amount contributed in the form of unlisted WLFI tokens. Flora Growth Corp. raised $401 million, predominantly through in-kind contributions of 0G tokens, which were initially priced at $3 but are now trading at approximately $1.20. Both of these companies have experienced substantial declines in their share prices, with their stocks falling by more than 65% since the announcement of their DAT plans.
Akshat Vaidya, co-founder of Maelstrom, commented on the situation in a Bloomberg report, stating, "An 80% in-kind DAT is effectively a thin equity wrapper around one single volatile token." He elaborated on the potential consequences, adding, "If the token drops 50%, the share price falls 80%-100% because the premium evaporates at the same time that forced sellers hit the bid."
Chris Holland, a partner at Singapore-based HM, echoed these concerns. He noted, "Ultimately, if market sentiment shifts, public investors in the fund, particularly retail, may be left exposed if the underlying illiquidity is finally tested."
While in-kind contributions have been a feature of the DAT landscape since early 2025, the nature of these contributions significantly impacts risk. Large, liquid contributions, such as Blockstream's 25,000 Bitcoin deposited into a treasury company, generally pose lower risks. However, the use of smaller, illiquid tokens introduces substantial risk, especially when the same insiders typically hold the majority of these tokens. Retail investors are particularly vulnerable to significant losses if market conditions deteriorate.