The losses to the retail investors in these types of DAT structures could continue to rise as billions of dollars in crypto market value keep going. According to some recent estimates, more than $17 billion in value has been wiped out.
DAT Strategies Leave Retail Traders Holding the Bag
A Bloomberg analysis suggests that retail traders have witnessed lesser returns on investment due to the recent market changes. Already, investor trust is being shaken in these vehicles as Bitcoin fell below $100,000.
Many DATs that once traded at a premium now trade below net asset value. “These structures can function like circular trades,” Chris Holland of HM said. “if liquidity is ever truly tested, retail investors may be left holding the losses the structure was meant to avoid,” he shared.
A selloff like what happened in October sent many of those in-kind vehicles downward. According to 10X Research, retail investors have absorbed at least $17 billion in losses after investing in DAT equities modeled after Michael Saylor’s Strategy.
Meanwhile, sponsors are increasingly turning to in-kind contributions. This is a system in which sponsors deposit their own tokens rather than raise fiat to buy on the open market. Usually, these tokens are unlisted or highly illiquid.
This might start to shift how risk is allocated. Often, that which seems to be capital inflow is recycled. However, when the markets turn, the fallout could reach the shareholders, mainly the retail traders.
Projects That Priced Out Their Public Backers
One example of this is Flora Growth Corp. The company in September announced a $401 million DAT linked to Zero Gravity tokens. But only $35 million of that came in cash. The rest was made up of tokens valued at $3 each.
After listing, those tokens dropped to nearly $1.20. This undermined the deal’s equity structure. Flora Growth shares have since tanked more than 65%.
Besides this, Alt5 Sigma raised $1.5 billion to purchase World Liberty Financial tokens. Half of that was comprised of WLFI tokens priced at $0.20 before they were even publicly traded. Both companies have seen drops in their stock prices since they began their treasuries.
Also, Tharimmune raised $545 million with 80% of the funds in unlisted Canton tokens. When the token finally hit exchanges, it fell almost 50%. That dragged investor equity along with it. As one analyst put it, “an 80% in-kind DAT is effectively a thin equity wrapper around a single volatile token.”