Earlier this month, Meredith blogged about some advice that Cicely LaMothe, Deputy Director of Disclosure Operations & former Acting Corp Fin Director had for “digital asset treasury companies,” or DATCos, concerning the disclosures that the Staff expects to see from them.  This DLA Piper blog takes a deep dive into the DATCos and addresses a variety of legal and business considerations associated with them. This excerpt reviews the capital markets tools being deployed in support of DATCo strategies:

A broad range of capital market tools is being leveraged to financially engineer DAT strategies, including at-the-market (ATM) offerings, private investments in public equity (PIPE), equity lines of credit (ELOC), convertible notes, warrants, preferred equities, de-SPACs, reverse mergers, and innovative credit facilities linked to staking yields and/or treasury performance.

ATM programs, which allow control over the timing of sales with minimal market impact, enable DATs to target sales when shares are trading at a premium to the treasury token’s net asset value and pause sales when market conditions are not favorable. PIPEs have gained traction among newly public or smaller companies looking to efficiently raise capital for digital asset reserves.

Convertible notes, coupled with derivative structures to help mitigate dilution, have also become attractive instruments, especially for high-growth companies seeking to rapidly scale their digital asset reserves. High demand for DATs in the convertible bond market has recently allowed such companies to negotiate favorable terms, such as zero-interest coupons and high conversion premiums. Companies announcing DAT strategies alongside capital raises have experienced significant stock movement.

The momentum in strategically deploying capital-raising tools for financial engineering is expected to continue throughout 2025.

Other topics covered in the blog include the reasons for institutional investors’ interest in DATCo equities, DATCo trading strategies, corporate governance issues and regulatory developments.

– John Jenkins