DeFi Development Corp. (DFDV): Why Solana and How the Company Is Positioned for the Future

In this episode of the WTR Small Cap Spotlight, DeFi Development Corp. Chief Strategy Officer Dan Kang joins host Tim Gerdeman and WTR Senior Equity Research Analyst Dr. John Roy to discuss the company's corporate strategy as a Solana-focused digital asset treasury. The conversation covers how DeFi Development acquires, holds, and compounds Solana through staking and validator operations, why Solana was chosen as the foundation of the company's treasury strategy, and how the firm's AI-powered SaaS platform is bridging traditional finance to the Solana blockchain. Kang also walks through how the company is positioned to capitalize on the growing institutional adoption of digital assets and what differentiates DeFi Development's approach within the rapidly evolving crypto treasury space. 

Transcript

SPEAKER_00 0:01

Welcome to the WTR Small Cap Spotlight Podcast. I'm your host, Tim Gerdeman, Vice Chair and Co-Founder and Chief Marketing Officer of Water Tower Research. In today's podcast episode, I'm being joined by Dan Kang, Chief Strategy Officer of DeFi Development Corporation, NASDAQ Ticker Symbol, DFDV. DeFi Development operates a digital asset treasury model focused on acquiring, holding, and compounding Solana through staking and validator options. Along Wow, I messed that up too. This is I I'm on back to back to back to back, calls my head spinning. DeFi Development operates a digital asset treasury model focused on acquiring, holding, and compounding Solana through staking and validator operations. Alongside its cryptocurrency strategy, the firm provides an AI-powered SaaS and technology platform connecting traditional finance to the Solona blockchain. Also joining is WTR's equity research colleague John Roy. Good morning, gentlemen, and thank you for joining us today.

unknown 1:03

Thanks.

SPEAKER_01 1:04

Thanks, Tim.

SPEAKER_00 1:05

Good morning. Dan, to kick things off for listeners not currently familiar with DeFi Development, can you please provide a high-level overview of the company's business model and the broader corporate strategy?

SPEAKER_02 1:16

Sure. So DeFi Development Corp was the very first Solana Treasury company, or DAT as they call them, digital asset treasury, to list in the United States in April of 2025. It was actually the first non-Bitcoin treasury company to list in the US. We're actually the best performing crypto stock of uh 2025. Um I believe if you were to measure from the date that we kicked off our treasury strategy versus the other Solana digital asset treasury companies, uh, still uh the best performing in terms of equity performance. And the core premise of the business is pretty simple. It's to provide investors exposure to uh what we call amplified exposure to Solana. Uh for a while we refer to ourselves as Seoul on steroids, but the basic premise is that we not only hold Sol, the governance token of Solana, on our balance sheet, but we actually grow the amount of Seoul on our balance sheet over time, both in absolute and on a per share basis. Um the model was uh I'm gonna say first pioneered by Michael Saylor and Strategy, where if you look at Strategy's uh equity performance versus Bitcoin, uh since they kicked off their Bitcoin treasury strategy, they've outperformed Bitcoin anywhere from let's call it one and a half to two X, depending on the time horizon you take. And I think DATs in general are a uh, I'm gonna say highly misunderstood asset class. There's lots of bad actors, but frankly, a lot of good actors that are capable of adding a lot of value on top of just holding the underlying asset or buying the ETF. Um that's a little bit of the overview on DFTV. As far as myself, uh before uh joining DFTV, I was on the corporate strategy team at Kraken for about three years. Before that, I did long short equity at a TMT-focused hedge fund in New York for about eight years. And before that, two years right out of college at uh Morgan Stanley and their credit risk department.

SPEAKER_00 3:04

Great. Well, thank you. That's a really helpful overview. And with that, I'm going to turn it over to uh John Roy to ask a few questions.

SPEAKER_01 3:09

Great. Thanks, Tim. And so, Dan, just to start off with the obvious question why Solana and why not Bitcoin or Ethereum?

SPEAKER_02 3:17

Yeah, it's a great question. Um, especially since the whole team at DeFi Dev Corp comes from Kraken Crypto Exchange, has been involved with crypto for quite some time. We all own Bitcoin, we all love Bitcoin. It was probably the top question that we got when we first kicked off the treasury strategy. The problem with kicking off a Bitcoin treasury strategy in April of 2025 is that you had the behemoth, Michael Saylor, and strategy that already, in our view, had an insurmountable lead. Um, there was nothing, I'm gonna say, really differentiated that we could bring to the table. And the metaphor I gave people was if I handed you a football and asked you to run it down a football field, would you want the field to be completely open, or would you want an NFL lineman standing right in front of you? Uh we chose the wide open field. So that's uh I'm gonna say soul versus Bitcoin. Then of course you have the question of all right, why not another layer one if you're gonna go with a smart contract platform uh like Solana, why not Ethereum, for example? And frankly, with ETH, we just didn't think there was as much upside. And the thing that we go back to over and over again is just looking at the technology, looking at the fundamentals of the two chains, comparing them. Uh people often say this and they do it in very vague terms, so I I want to get a little specific on this. And the things that I focus on and the team is very focused on are speed, cost, and throughput. So um if you just look at, let's say, transaction confirmation times on the Solana Network versus Ethereum, it's materially faster and on par with centralized players like Visa. If you look at transactions per second, um, often in various scenarios, uh the TPS on the Solana network is either on par with or in excess of centralized infrastructure that we know and we love today. Uh in terms of cost, fractions of a cent to execute a transaction versus on the Ethereum mainnet itself can often be you know north of a dollar. And during periods of very heavy congestion, sometimes transaction fees are $100 or even $1,000. So the net result of all of this is that Solana very consistently has a lead over Ethereum and other layer ones on number of users, number of transactions, fees generated. And to date, uh, to give a very um fine point on this, has actually had a very clear lead in areas like tokenized equity volume. Or I believe to date Solana has had somewhere north of, let's say, 95% market share on uh total volumes. So you look at those fundamentals and you say, okay, well, it's just 4% the market cap of Bitcoin. It's really the clearest bet on, let's call it crypto utilities. You look at the fundamentals versus the market cap, and it became pretty clear that sole was the easy choice for a treasury asset.

SPEAKER_01 5:47

Excellent. Uh very, very good description of why you chose what you chose. So now you guys also use the sole per share kind of metric, I guess, if you want to call it that. How does that really help you guys with shareholders? Is it an exclamation mechanism? Is it a target? Well, what is it?

SPEAKER_02 6:06

Yeah, so sole per share, very simplistically, takes our soul balance and divides by shares outstanding. It's a measure we like to think of how much soul exposure each common shareholder has. There's different ways to measure it, but simplistically that's the best definition. And what you care about with this metric and why you care about this growing over time is that if it's growing over time, it means that the size of your treasury is outpacing share dilution. So taking a step back, a lot of digital asset treasury companies rely and historically have relied pretty heavily on equity issuance in order to accumulate more of the underlying treasury. And if you looked at strategies specifically, the reason they have outperformed Bitcoin by a magnitude of anywhere from one and a half to two X since the inception of their treasury strategy is simply because they've grown their Bitcoin per share by a magnitude of over 5x over the course of the last, let's call it five and a half, six years. Um and that really comes down to this idea that you want to grow, ideally, if you're growing your crypto per share over time, you're growing your nav per share over time, right? Your net asset value per share. NAV being a function of not just the total amount of crypto that you own, but also a function of the actual crypto price appreciation itself over time. So we really think sold per share uh over the long term is the best metric of success for a Solana digital asset treasury company. Um but I will say that I think most treasuries to date have been pure strategy copycats. Um, they've been entirely capital markets dependent. And yes, we also run on capital markets, and you know, for that reason, we like to benchmark ourselves against sold per share, but it's not the only way we've been able to historically grow our Solana treasury. Um, you know, we've been able to grow organically through our validator operations and staking and various, I'm gonna say, like other bet investments uh to effectively compound the underlying per share exposure for shareholders.

SPEAKER_01 7:59

Excellent. Now, you had mentioned before you uh you work corporate strategy and uh Kraken, obviously a major exchange. How has that kind of flavored your risk management and how you're approaching things here today?

SPEAKER_02 8:16

That's a great question. Um I think I learned a couple of things from my time at Kraken. The first is that you learn to get a strong stomach for bear markets. I joined Kraken in 2022, about let's call it six months before uh FTX blew up. And I've been personally involved in crypto much longer, but obviously joining in 2022 was still a great initiation into, I'm gonna say, operating and working in the space during a time in which things looked pretty bad. Uh by comparison, nothing we've endured over this last year at DFTV has really been that big a deal. Um but I think like one of the key learnings from that was how quickly things can turn. And when we set up our digital asset treasury strategy at DeFi Development Corp. We wanted to make sure that nothing we did was going to compromise the business in the short term. So we'll uh touch on this a little bit later, I'm sure, but you know, if you look at our capital stack, all of our debt that we've taken out to purchase Solana is long-dated, earliest maturity 2030, unsecure, low coupon. And the idea here is that we didn't want to be in a position where we did something where we could get margin called or you know, a one-day or one week move uh on Seoul in the wrong direction compromised uh you know the treasury in any capacity. So that was one big thing from a risk management perspective where you learn that the markets can move very quickly against you in the short term, even if you're right in the long term, and you need to brace yourself uh for that kind of reality. The second is I would say one of the key challenges I had on the strategy team at Kraken was um keeping our executives focused. You know, I I've often been of the belief I'd rather be exceptional at one thing than mediocre at 10 things. Um at Kraken, I would say we were particularly exceptional at the time at serving more sophisticated traders, right? High net worth individuals, institutions, for example. Um and I loved that we leaned into that for quite some time there. So part of my job at DFDV has been trying to get us exceptional at a few things and really playing to our strengths rather than trying to pursue 10 different things. Uh and we've historically drifted from that from time to time, particularly early on in the treasury strategy days where the stock was up somewhere like 6,000%, it was peak euphoria. But lately I think a lot of the focus has really been coming back. And we ask ourselves, how is it that anything that we do with the company is in service of sole per share growth? I mean, it's even in our email sign-offs in service of sole per share growth. That's how much we lean into it. So, what are some of the things we like leaning into? We need to be great advocates and storytellers for Solana, right? And translate it for different types of investor audiences. Some who are more familiar with crypto, some are less familiar with crypto. Uh, we need to be obviously highly analytical and judicious on capital raising, right? Since that is the name of the entire game. Um, and frankly, anything again that eliminates distractions that don't help us grow Sol Per Share over time, like that's probably the number one thing that we're focused on. So I would say those are some of the key things I learned at Kraken is making sure you manage your risk properly and you know can withstand bear markets, whether they last for you know a few months, a year, or two years, and then frankly, making sure you stay focused and keep your eye on the ball.

SPEAKER_01 11:29

Excellent, excellent. Now you have a uh what does he call it, a soul boost framework that you use. I mean, how is that really gonna work and not dilute existing shareholders?

SPEAKER_02 11:43

Yeah, it's it's interesting how the framework came to be. It's fairly recent. Um I wouldn't say the thinking is fairly recent, but us coming public with it has been fairly recent. And the basic premise was to try to shift investors' attention to something really simple, which is that we are an amplified way to get exposure to sole. And uh leverage, or rather intelligent leverage, as we like to call it, is a key input to that. And it was all born from a question I often get, which is what am I actually buying when I buy DFTV instead of spot sole or an ETF? And we tried to boil this down to a formula where we could say, okay, you can approximate the equity return on DFTV by looking at you know some function of leverage, sole per share growth, and measuring that and using that as an amplification factor or sole boost factor, if you will, on sole return. So in this case, leverage is just total debt over market cap, sole per share growth is the rate at which we actually compound sole per share, right? The growth of the treasury uh relative to dilution, and then sole return is obviously the actual uh price action of sole, if you will. So let's talk about leverage. Again, I alluded to intelligent leverage, and the idea here is that we like things like convertible debt, which obviously converts to equity before it ever has to be repaid in cash, assuming that you know the price action of the underlying is strong enough over time that your share price clears the strike hurdle rate. Uh obviously a pretty crucial distinction versus let's say regular or traditional senior debt, um, given that uh you know, with traditional senior debt, you don't get the embedded option value that attracts a lot of, I'm gonna say, convertible ARM funds and things like that. Uh but also the quality of the leverage matters just as much as the quantity in the sold loose framework. So again, emphasizing this point, secured debt, for example, is not a good form of leverage, particularly in the event that you know we have to uh deal with a prolonged drawdown, and some of our competitors in the space, for example, um, do have a considerable amount of exposure to secured debt short duration, and it's not a position that we want to be in. The second engine or component to the sold boost framework is sold per share growth, and we've spoken about some of the uh things that drive it, right? The uh, I'm gonna say equity issuance whenever we're at a premium to nav. But of course, we also have our organic yield, which is um a function of both our validator and staking yield as well as our on-chain deployment, uh, and frankly, even potentially buying back our own liabilities at discounts. You know, historically, um, we've just started doing this, but we've been able to buy back some of our July 2030 convertible debt at let's call it somewhere around 60 cents on the dollar, which is highly nav per share and uh sold per share accretive. So the principle underneath this is all the same. Like you have to score this against how much is this driving sold per share growth, nav per share growth, etc. Um, frankly, if a transaction grows sold per share, we'll try to do it. And if it doesn't, we don't. And it's a pretty simple framework to understand.

SPEAKER_01 14:32

Yeah, it's nice to have a uh a good target to hit. So I you're hearing like dividend-backed stable coins. Are you guys doing stuff in that? And how does that relate to your sold per share kind of approach?

SPEAKER_02 14:48

Yeah, it's interesting. So um, you're probably alluding to Apex, which is a project that we um seeded with an investment. I'm pretty limited in what I can say on this, but what I will say is that Apex is born out of a simple thesis that the next era of on-chain yields was going to be driven by, let's say, off-chain or traditional finance instruments. So Strategy did something pretty interesting with um uh preferred equity over the course of the last, let's call it, 12 to 18 months, right? And um the most recent one, which has gained traction, uh, stretch, their variable rate preferred. And what that effectively did was it stripped the, or what they tried to do, I should say, is they tried to strip the vol of Bitcoin and tell folks, okay, if you just want a stable double-digit yield and no BTC vol, or rather dampened volatility on Bitcoin, this is the instrument for you, right? You don't want to deal with the roller coaster of owning BTC outright, or maybe you don't want to deal with the roller coaster of owning MSTR equity or anything like that because you can't deal with the very sharp drawdowns and you know high ball instruments. So they created stretch. And up until I would say late May, the idea of like a Bitcoin-backed money market fund and quotation marks really worked, right? If you looked at the ball of stretch, it was somewhere around a one-ball and maybe even close to zero-ball instrument, and paying out a very steady 11.5% yield. Of course, Bitcoin rolled over, and you know, I think it makes intuitive sense that any instrument that is paying yields based off of a uh, I'm gonna say, Bitcoin-based asset value treasury um was going to exhibit some volatility in light of that. But all this to say, like Apex was able to capture a lot of the growth and stretch notional uh year to date. I want to say Apex peaked somewhere around 400 million of TVL. The team can confirm it may have actually been a little bit higher. But the goal of the team, the goal of the protocol was to um effectively try to take that yield and pass it on chain. And our goal at DFTV has always been to be a bridge between TradFi and DeFi. It's literally the logo of the company. And part of that strategy has been taking asymmetric bets where we think the payoff can be magnitudes higher than the initial investment amount or cost. In this case, since Apex is also focused on digital asset treasury preferred equity, uh, and we've expressed interest in pursuing our own variable rate preferred equity. I think investors can try to connect the dots and see how Apex might benefit DFTB in the future. Excellent, excellent.

SPEAKER_01 17:15

Um looking forward to hearing more when you can say more. Um so your Treasury accelerator program, maybe you can give us a little color on what that is and how does that work?

SPEAKER_02 17:27

Yeah, it's a great question. So it was born from the idea that uh I'm gonna say dat on dat deployment can actually be sold per share creative. But it was originally um, I'm gonna say, born from just a basic premise that we should be helping launch other Solana treasury vehicles in other regions. Um, I think we're often very US-centric or Western market focused, but there's very clear demand for digital asset treasury companies um, you know, purely for access reasons or tax inefficiency reasons in a lot of uh Latin and or Asian markets, for example. Um so we started with that premise and we said, okay, where would we want to launch other sole treasury vehicles globally? And then we sort of expanded and said, all right, would would we consider non-Solana treasury vehicles to the extent that we're able to help, I'm gonna say, support various teams in their treasury strategies via various a la carte menus? So um maybe we're very, very hands-on with a particular treasury vehicle in the US, and we're gonna handle staking and custody and you know, deliver accounting services, things like that. And obviously, the more involved that we are, the more economics that we're able to, I'm gonna say, recognize or realize uh from that partnership or investment. So Zero Stack was actually the first example of this, which is the um uh Zero G DAP. And we announced our support last September. And I really like this blueprint because um folks didn't know it at the time, but we invested via a sole-denominated convertible node. And this gets back to the idea of asymmetric risk reward, right? In the worst case, we get our sole back plus interest. In the best case, we got a call option on zero stack, which again we like to think of as amplified exposure to zero G. Um, so that really fit the playbook of bets that we like taking. Uh, allied architects in Japan is another example that we announced. So this effectively operated as our gateway into the Japanese market. They're a multi-asset dat, but we had announced our intentions to enter the Japanese market last fall as well. So those are a couple of examples that played out. I'm gonna say one that didn't play out the way we anticipated was UK, which is one that we announced uh last August. Um, and we effectively had to shutter that just for regulatory exposure. Um, you know, again, really good asymmetric risk reward profile. It didn't hurt us too badly to make that investment and ultimately have to pull the plug. Uh but at a certain point, you do have to pull the plug and make sure it's not costing you too much more on time. So that's what we decided to do. And we'll have more to say on TA, hopefully at earnings in uh in a couple of weeks. But that's effectively been the uh, I'm gonna say, the status update on the program.

SPEAKER_01 20:03

Excellent. Looking forward to that update for sure. So maybe is my final question what is your core pitch to traditional institutional investors that really want exposure to Web3, but really don't want to hold digital assets directly on their own balance sheets. Uh is there a pitch there?

SPEAKER_02 20:23

Yeah, they should buy debts. I loathe the term Web3, but I will say I will say the term crypto.

SPEAKER_01 20:30

Um, well you can replace it with whatever term you need.

SPEAKER_02 20:32

Yeah. It's an interesting question. Um I usually ask them what their hesitation is, and nine out of ten times it either comes down to one lack of understanding on the various assets to actually choose from, right? So I think Bitcoin is it's is in its own category, it's better understood, right? It's um been around the longest, et cetera. But there's still a lot of investors spinning the wheels on soul versus ETH versus height versus you know, name name your layer one here. Um so there's a lack of understanding, and then of course is the volatility profiles of the underlying assets. And on the volatility side, what I would tell folks is that um DATs often offer different flavors of volatility, right? So maybe DFTV common equity isn't making it into a traditional long-only book, just given the volatility of Seoul and therefore the amplified volatility of DFTV itself. But our convertible debt, which is much lower of all, obviously has higher downside protection as the most senior instrument in the stack, might be appealing to a subset of credit investors who maybe want the exposure to the embedded optionality, right, to be a V convertibility feature, uh, but also do want that downside protection. But probably the most important point on vol is that crypto vol has clearly been coming down over time as adoption has been going up. And the example I've given folks is you can just look at Bitcoin itself since inception to see that this is the case. If you look in 2024, for example, Bitcoin was actually less volatile than half of the Mag 7, which I think is again speaking to where it is on the maturation curve. And my expectation is that Seoul will exhibit this over time as well, albeit over a long time horizon, right? I don't expect that'll be the case next year, but probably five, ten years out, that could be the case. And I would say that for folks who are still hesitant on this, there have been very clear signs over the course of the last year that the overhaul of traditional financial infrastructure is actually happening before our very eyes. Um, you know, Nasdaq and NISE are pursuing initiatives around uh tokenization, for example. Uh all the regulatory frameworks are uh generally moving in the right direction. Um, you know, anecdotal, but know of at least several large financial institutions who are making really big bets on, again, equities tokenization, uh broader RWA tokenization, and perps, for instance, where there's obviously been very good product market fit. So simplistically, I think it's as easy as asking do you think big institutions are going to want to move onto Rails that are fast and cheap, right? I don't think crypto adoption is really going to go uh berserk because of some big splashy consumer app, for example. But the overhauling of the world's financial infrastructure is probably an easier story to get behind, and it's already happening. And of course, a little bias in this, but we believe the best way to get exposed to this trend is sold. Uh it is, I will clarify this, likely to be a multi-chain world, right? Uh I don't think there will be a hundred chains, but probably very unlikely there'll be one chain to rule them all. So I understand why someone might also want exposure to Ethereum, for example. But at the end of the day, in a multi-chain world, I want the one with the best tech, the best usage, the best traction under stress, and Solana has consistently proven to be that chain. The elevator pitch I give institutions often when they tell me or when they ask me, like, uh tell me the difference between Bitcoin and Solana, and this is obviously a question rooted out of folks who are new to the space, is I tell folks Bitcoin stores value, but Solana moves it. And that usually at least gets the gears turning on how to think about the differences between the two assets.

SPEAKER_01 24:00

Yeah, and you could also pitch the idea that you know Wall Street is pretty sophisticated. They're gonna be one of the ones that will be the first to really understand the pluses and minuses of the different blockchains versus traditional, and they're gonna want all the advantages when it's appropriate. Yeah. With that, Tim, over to you.

SPEAKER_00 24:16

Thank you, John, and uh Dan King, thanks for joining us today to discuss DeFi development. I loved that uh elevator pitch and LEU just uses non-techie that resonates with me, so thank you for that, and thanks for joining us today. Thanks so much for having me, guys. Thank you for listening, and don't forget to subscribe, as well as visiting www.watertowerresearch.com to stay up to speed on the company's small cap written research reports, podcasts, fireside chats, industry specific symposiums, and conference schedules. We will see you next time for another edition of the WTR Small Cap Spotlight Podcast. Finally, a special thanks to the producer and editor of the podcast, Krista Fitzpatrick.