A Solana Treasury Firm Made $66.6M Without Making Much Revenue - BeInCrypto
DeFi Development (DFDV) stock fell 8.95% on November 12 after reporting a $66.6 million third-quarter profit despite nearly halving its revenue.
The stock closed at $2.95 on November 12, down from $3.24 a day earlier. Despite the drop, the company's net asset value (NAV) per share more than quadrupled between August 12 and September 30. Shares traded above the previous close in the morning before declining midday.
Profit Sources
The firm's Q3 shareholder letter revealed revenue fell 47.4% year over year to $2.4 million. However, two gains drove the $66.6 million profit. Net gains on digital assets contributed $37.9 million, down 49% from the previous year's $74.4 million. Derivative instruments generated $33.4 million, significantly up from $4.6 million a year earlier.
Revenue covered only part of $4.3 million in operating costs and $3.4 million in interest expense. Despite these expenses, the company's SOL holdings and equivalents grew 13% from August 12 to about 2.61 million by November 9.
Stock Volatility
The company's stock swings more dramatically than SOL itself due to its use of debt and preferred stock to purchase additional SOL without issuing new common shares. In Q3, the stock returned about 1.5x SOL's price gain. Management estimates the amplification factor at above 9x, with about $221.8 million of gross SOL on $23.9 million of net asset value for common holders.
Amplification works in both directions, and shareholders felt its impact over the last year as SOL fell.
Future Plans
The firm plans to fund more SOL purchases through CHAD, its perpetual preferred stock. Initially pitched as an up to $20 million offering at 13%, the dividend rate rose to 14% on November 2. The company stress-tested CHAD against a 50% SOL price drop, finding assets would cover CHAD notional 0.4x after a convertible principal event.
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