Columbia Business School professor Omid Malekan has stated that any analysis of why crypto prices continue to fall must include Digital Asset Treasuries (DATs). He argues that, in aggregate, DATs have functioned as a significant extraction and exit event, contributing to the decline in prices.
Malekan noted that while there are a few exceptions, many DATs were launched in a manner that was likely to cause value destruction for crypto assets. Based on his interactions, he believes that many individuals launching DATs viewed the model as a get-rich-quick scheme.
The DAT Frenzy
Professor Malekan highlighted issues such as jittery investor presentations that omitted crucial details, the excessive use of buzzwords, and a lack of basic disclosure, including information about who was being compensated. He asserted that the underlying intent behind many of these launches was evident.
Malekan explained that launching any public entity is a costly endeavor, with millions of dollars required for shell companies, PIPE deals, or SPACs, in addition to substantial fees paid to bankers and lawyers. He pointed out that the funds expended on these fees had to originate from somewhere.
He also drew attention to undisclosed "advisory agreement" deals that many DATs entered into, which were rarely mentioned in marketing materials. Malekan emphasized that the costs associated with these agreements also had to be covered. Furthermore, he shed light on the inherent conflicts of interest arising when DATs appointed founders or venture capitalists to their boards and subsequently channeled shareholder funds to their own startups or portfolio companies.
Malekan believes the most significant damage DATs inflicted on the overall crypto market capitalization was by facilitating a mass exit for tokens that were supposedly locked. He expressed surprise that more investors did not object to this practice. According to him, many altcoins had considerably larger circulating supplies, and markets tend to discount such factors. The easiest element to discount is the presence of "more supply than anticipated."
VanEck Flags Weakness in DAT Model
Last month, VanEck issued a warning that the DAT model carries inherent risks because it is directly dependent on volatility. However, volatility is structurally declining in Bitcoin as adoption increases. The global investment management firm suggested that a DAT requires consistent price swings to finance asset purchases, and a long-term trend toward reduced volatility jeopardizes the fundamental economics of the model.
VanEck also identified structural market challenges within this sector, noting that many new entrants lack sufficiently deep or liquid options markets to effectively price risk. This situation could eventually lead to the depletion of the "volatility well," thereby diminishing the capacity of DATs to acquire assets.