Beta, meet cash flow
Article Author: Prathik Desai
Article Compiled by: Block unicorn
"The further back you look, the further forward you are likely to see." ------ Winston Churchill
The current state of Digital Asset Treasuries (DAT) bears a striking resemblance to closed-end funds in the United States during the 1920s. People bought shares of closed-end funds, which then purchased stocks on the open market. Investors indirectly obtained beta returns from these stocks and paid a premium for it. The speculative premium of these funds once reached 30% of the fund's net asset value (NAV), until the stock market bubble of 1929 turned the premium into a discount. Investors ultimately realized painfully that this investment approach was not cost-effective.
When I read this, it felt familiar, much like everything we've seen in the DAT ecosystem over the past few months. It's hard not to see the similarities.
Bitcoin-based DATs (such as Strategy) offer leveraged returns tied to BTC prices. Investors pay a premium for this. When cryptocurrency prices rise, this flywheel effect comes into play; but when the market crashes, this effect also collapses. The key to whether DAT can continue to operate through market cycles lies in what underlying assets its appreciation is tied to. Most cryptocurrency treasuries surrounding BTC and ETH are leveraged bets on the price increase of the underlying cryptocurrencies.
But what if the token price is closely related to the revenue generated by its ecosystem? What if it has almost no correlation with uncertainty? Ideally, what if it is negatively correlated with the performance of other asset classes during periods of macroeconomic uncertainty?
In today's in-depth analysis, I will explore why the asset selection of DAT determines the sustainability of its digital asset strategy, using a HYPE-based digital asset strategy (DAT) company as an example.
Hyperliquid Strategies (Ticker: PURR) began its DAT journey by establishing and holding Rorschach LLC, a special purpose acquisition company (SPAC). The company then reverse-merged this SPAC with Sonnet BioTherapeutics. Sonnet BioTherapeutics is a biotechnology company listed on NASDAQ that was struggling at the time, with its flagship cancer drug seeking commercial partners for years.
This is similar to the strategy previously used by Twenty One Capital on the BTC project, when BTC was supported by Tether, Cantor Fitzgerald, and SoftBank.
At its inception, PURR held 12.6 million HYPE tokens worth $583 million, along with $305 million in cash. Earlier this year, the company spent $129.5 million to acquire an additional 5 million HYPE tokens.
But why should Hyperliquid Strategy achieve better results than previous DATs?
Different Jars
In the first wave of DATs, the packaging itself was an innovation. Companies could exchange BTC for ETH and ETH for SOL, and this model worked well. This is because its flywheel effect was built around the premium on the company's net asset value (NAV). What the underlying assets are does not matter. As long as DAT shares trade at a premium, investors will buy in, hoping for higher returns from token price increases.
However, this bet reversed when the market struggled to recover from the largest single-day liquidation in the cryptocurrency industry.
Although the liquidation came suddenly and occurred after U.S. President Donald Trump issued new trade tariff threats against China, the plight of DAT was not unexpected.
Months before the liquidation event, we pointed out the risks in the DAT model of Bitcoin treasury strategy leader Strategy:
"The strategy works well during Bitcoin bull markets because capital appreciation is favorable for purchasing more Bitcoin, while the increase in market capitalization also drives soaring earnings reports. However, the sustainability of this model depends on continued market access and rising Bitcoin prices. Any significant downturn in the cryptocurrency market would quickly reverse the second-quarter performance, while fixed expenses such as debt interest and preferred stock dividends would continue."
Fast forward to mid-November, we saw concerns about DAT manifest in real-time: declining mNAV, slowing Treasury purchases, and falling stock prices of DAT companies.
The problem with this strategy is that the three major treasury assets—Bitcoin (BTC), Ethereum (ETH), and SOL—share a common, tricky flaw: they do not generate cash flow themselves. Their price increases depend entirely on how people trade these cryptocurrencies. This trading is driven by various factors: ETF fund flows, institutional investor interest, discussions in online forums and communities, and investors' perception of BTC's role as "digital gold" in the macroeconomic landscape.
Admittedly, ETH and SOL do compensate for their slow token appreciation through staking rewards. However, staking rewards are paid in newly minted tokens. Each time ETH and SOL staking rewards are paid, the equity of existing token holders is diluted to pay the validators.
Funds holding these assets (whether BTC, ETH, or SOL) operate similarly to closed-end funds holding a single non-dividend-paying position. The only way they profit is through rising token prices or expanding NAV premiums. The former is affected by market volatility, while the latter is driven by market narratives.
While both Ethereum and Solana generate transaction fees, only a relatively small portion of the revenue is returned to token holders. In 2025, Ethereum's on-chain fee revenue is about $515 million, while Solana's is $645 million. Most of this does not reach token holders; it is either captured by validators or offset by newly issued tokens.
In contrast, the fees generated by the Hyperliquid protocol last year approached $1 billion. More compellingly, 97% of these fees were returned to HYPE holders through a buyback mechanism.
Hyperliquid currently has a daily trading volume of $5 billion to $7 billion, with a monthly trading volume of about $200 billion, generating approximately $730 million in fee revenue annually from trading activities. Therefore, every dollar traded on Hyperliquid helps strengthen the fundamentals of HYPE pricing.
This makes the HYPE treasury feel less like storing BTC or ETH in a treasury waiting for market valuation and more like holding receipts for transaction fees from a derivatives exchange.
Any publicly traded packaging holding HYPE, including the HYPE recently held by PURR, is essentially still a bet on HYPE's price. Their organizational structure is the same as that of BTC, ETH, or SOL treasury companies. This allows us to view them from the same perspective. However, considering the fundamental factors driving the token price movements, I am more optimistic about HYPE treasury companies.
PURR's stock price reflects its indirect claim to the present value of all cash flows generated by the Hyperliquid protocol from its derivatives business.
You don't have to take my word for it. Hyperliquid has recently proven this multiple times.
A Proven Case
During last month's U.S.-Iran war, both risk assets and traditional markets experienced volatility. HYPE rose by 40%, while the S&P 500 index and Bitcoin showed weakness. The former fell by 3% to 5%, while the latter rose by 5%.
Since the largest cryptocurrency liquidation event on October 10, HYPE's price has increased by about 60%, while BTC's price has dropped by 40%.
This is not a coincidence. Uncertainty-driven volatility is unfavorable for passive value storage methods but beneficial for derivatives exchanges. Uncertainty prompts traders to hedge positions. Liquidation events incur costs for both sides of the trade. Factors that erode the net asset value (mNAV) of Bitcoin treasury strategies, however, favor traders in the trading venue.
This bear market, which has led Bitcoin and Ethereum treasuries to their demise, has brought record trading volumes and fees to Hyperliquid's ecosystem. Bitcoin and Ethereum treasuries can only wait for the market crash to pass, while Hyperliquid's profits thrive in this environment.
Hyperliquid's HIP-3 market further reinforces this argument by introducing traditional assets, including metals like silver and gold, into the blockchain, allowing investors in financial markets to express their views across asset classes.
I believe this is the biggest reason why HYPE's DAT strategy stands out from other strategies.
No One is Safe
PURR's DAT strategy remains a bet on Hyperliquid's price. Hyperliquid may lose its original market share to competitors like Lighter, Aster, or some protocols that have yet to be conceived.
However, despite these challenges, what inspires confidence is the choice of underlying assets. PURR's institutional supporters promote their DAT strategy as "the only way for U.S. investors to participate in HYPE." But if fund companies are allowed to issue HYPE spot ETFs, the entire DAT strategy could become obsolete. Both 21Shares and Grayscale have submitted applications.
Earlier DATs had to worry about how to maintain their NAV premiums. This depended on market psychology and investor confidence in the model. In contrast, HYPE-based DATs only need to answer a simpler question: Can Hyperliquid continue to be profitable? This question depends more on weekly fee data, potential market share, and the protocol's roadmap—which also includes the upcoming HIP-4.
All of this is data that analysts can use to make informed decisions. Analysts may still be wrong, but their judgments are supported by data.
There is a counterargument here.
What if Ethereum and Solana surpass Hyperliquid in fee revenue? This is not impossible. But considering that Hyperliquid returns profits to HYPE holders through buybacks, the situation becomes much more complex.
While Ethereum does return some fees to ETH holders, this portion is completely offset by the new ETH it issues to validators. Solana's fees are entirely captured by validators, with the portion ultimately flowing to Solana holders being negligible. For either Ethereum or Solana to reach the yield levels of Hyperliquid tokens, they would need to rewrite their underlying token economic models. Meanwhile, network activity would also need to be several times higher than current levels. These are not things that can be accomplished overnight.
Even if this situation occurs, I believe the same argument still holds. I do not think HYPE will forever be the only successful asset in DAT. I believe that DATs built on assets that can provide continuous returns to holders will have a longer lifespan than those built on assets that cannot generate continuous returns.
These two models are fundamentally different. The first generation of DATs (debt financing agreements) expects investors to believe in the story they construct for underwriting, while the second generation expects investors to believe in their cash flows.
The closed-end funds that survived the 1929 bubble were those that could still distribute dividends during market downturns. Everything else was merely packaging for speculative behavior.
HYPE-based DATs may ultimately face the same fate as other DATs. No one can be sure. But criticisms of them are likely to revolve around market share, fee stability, and other fundamental business metrics. At the very least, it won't end with "I told you so" like the collapse of BTC DAT.
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