Sol Play on Inside Upexi: Staking Yield and Locked Token Trading

Upexi is the largest public company holding Solana Tokens, using SOL strategies to build holdings and generate additional revenue through staking. In an interview with Crypto.News, Upexi CEO Allan Marshall explains why the company implemented a massive private equity placement to build Crypto Treasury to address the MicroStrategy playbook and US policy background.

Upexi has acquired its status as “a new institutional gateway to Solana’s (SOL) speed, scale and rapid-growing ecosystems.” But that’s not just because they’re building Solana’s finances on a handful of rival companies as well, but dozens of other public institutions have focused on other coins.

Speaking to crypto.news, Marshall discusses strategy and market perception. He points out that Upexi focuses on sorting out Sol purchases, trapped and discounted subsidized capital, rather than venture investments. He also discusses how the company measures progress through a “per-sol” metric designed to remove the effects of timing and leverage.

It also covers the company’s risk management strategies, including its purchasing and retention approach, hedging, disciplined use of leverage, and custody with qualified providers.

The entire interview transcript is shown below.

Crypto.News: Upexi is currently Solana’s largest corporate owner, with over 2 million Sol in the Ministry of Finance. Why did you have such a dramatic change now? Have you ever had any particular happen in the past few months that gave you confidence to commit heavily to the Cryptocurrency at this point?

Allan Marshall: Upexi did his first large equity private placement to create an Altcoin Treasury. There were two important items that led to this strategy adoption. The first was a growing appreciation for all the value that the micro strategy has created, as it has been the best-performing stock in the US since adopting the Bitcoin Financial Strategy in August 2020.

CN: There are so many crypto assets available, and what makes you believe Sol is the best reserve asset for Upexi’s needs? Have you considered an alternative? If so, what unique advantages did Solana offer that others didn’t?

AM: Bitcoin is considered the best financial asset, and Solana is considered the best high-performance blockchain. By going with Solana via Bitcoin, we can not only be the first invokers, but also have been supported by more potential potential assets, all else equally, with Solana’s market capitalization being Bitcoin’s market capitalization. What’s more, backed by Solana allows for additional ways to create value, such as staking to earn an 8% yield.

CN:Upexi sits on an unrealized profit of $142 million. Can you provide a breakdown of this number? For example, how much has it come from your strategic actions, such as looking at Sol’s prices and buying discount tokens and earning staking yields?

We don’t report it being broken down, but gain is a combination of all the tools needed to create value. Sol’s thanks from early and strategic purchase of both liquids and locked tokens.

Essentially, to measure the Treasury’s performance, we invented a new financial indicator, “sols per adjusted sol.” How exactly is this metric calculated and why do you think it’s a better indicator of value creation than the SOL or NAV per SOL that is more perceived? Practically, what exactly does the current 0.0197 adjusted Sol-by-sol figure adjust to investors?

(September 11) From the press release, we have explained in detail the metrics per tuned Sol in the table. We consider this to be a better metric than the basic adjusted sol per share, as it allows you to adjust items that distort calculations such as investment timing and leverage. For example, a company could raise $100 million, buy a month of SOL for a month, then buy a $999 million SOL the following month, and during that time, it would argue that the basic SOL increased by 99 times, because there were fewer initial purchases than value creation. The company then borrowed $100 million and doubled it after purchasing SOL in the following months and doubled per share per SOL, but this was due to leverage rather than a key value generation mechanism. Adjusted per SOL metrics adjust such items to measure the creation of value from additional issuances, staking, and discounted locked SOL purchases.

Sol per adjusted Sol of 0.197 shows investors and the amount of adjusted SOL that underlies each share of Upexi Common Equity. Investors can see how this develops over time to measure the effectiveness of UPEXI’s financial management business, and can convert the adjusted SOL by multiplying the price of the SOL to see the premiums our stocks are trading compared to the value of (adjusted basis).

Over 53% of CN: Sol Holdings have locked tokens purchased at mid-teen discounts and spot prices. Can you explain what these locked tokens are and why Upexi chose to buy locked tokens at a discounted price? Locked tokens have built-in benefits for shareholders and how long will those tokens be liquid?

AM: The Solana Foundation sold tokens early to cryptocurrency venture capital companies and investors to raise funds for protocol development and developer grants. However, these tokens were locked because they were early in the development of Solana. Therefore, investors are not free to use them in Defi and do not trade in exchanges (OTC only). Upexi generally can purchase locked tokens by 2028 at mid-teen discounts that make its vest liquid each month. There’s no reason not to buy a locked token to take advantage of investor discounts as you don’t plan on selling Solana. Furthermore, locked tokens are still early in staking yields of ~8%, and when mid-teen discounts fall on equal terms with yields, we are nearly double the pile. So buying a locked Solana at a discount is a great way to get a big built-in profit for shareholders and increase staking yields in a risk-wise way.

CN: Not to mention the volatility comes with single asset Cryptocurrency. How do you approach risk management at Sol Holdings? Do you hedge for downside protection or are you totally confident that the recession will turn around? In more practical terms, how do you reassure investors that the company isn’t overexposed when Solana faces a massive revision?

AM: We have a buying strategy and we don’t buy and hedge when we have the funds to do so, considering the view that Solana generally increases over the medium term. We try to risk and maximize the value of our shareholders, so we don’t take on too much leverage and we don’t do crazy design trade on-chain. We believe this is not only suitable for any market environment, but also a strategy that resonates with both crypto and traditional investors.

CN: Is there any plan to move rather than simply keeping the SOL? For example, are there any benefits to investing in projects and builders within the Solana ecosystem to complement Sol Holdings? Or do you focus on Solana and think of it as the center of your strategy?

AM: There are no plans to move beyond holding and staking Solana, locking Solana, and engaging in the issuance of Accretive Capital. The three value generation mechanisms of increased compensation, staking and discounted locked Solana purchases are so powerful that it makes no sense to deviate from it.

CN: Upexi’s stock trades at about 0.7 times the basic NAV times of Sol Treasury. Why do you think the market rates Upexi with crypto Holdings discounts? What steps can we take to close the gap in valuation so that the stock price better reflects the underlying holdings? It has been revealed that Sharplink has announced its share buyback program, acknowledging its shares below NAV. Would you like to consider a similar movement?

AM: There are many items that mislead what misleads basic MNAV calculations. Therefore, we do not believe that the market represents the true fundamental valuation that it attributes to the company. Here we have published “Full Loaded MNAV” metrics that adjust leverage, cash, pre-funded warrants, and more. Here, we are currently trading at 1.4 times.

CN: I noticed that managers are active in investor meetings, including presentations at Needham, Canaccord and HC Wainwright. Can you discuss how traditional financial audiences and investors respond to your cryptocurrency strategy? What are the most common questions and concerns you hear from institutional investors and analysts?

AM: Traditional investors’ knowledge levels are quite diverse, many of whom are considering cryptocurrencies and crypto stocks for the first time. Thus, the most common question we receive is, “What is the difference between Solana and Bitcoin?” Another common question we get is, “Why Solana?” Traditional investors understand how strong the model is, and cryptocurrencies could be more positive than negative catalysts, such as the likely combination of coming together to promote legislation in the US market structure.

CN:upexi is on a burgeoning list of public companies adopting cryptocurrency strategies. Do you think you are driving this wave of corporate cryptocurrency strategies? How does upexi’s approach compare to OG for this strategy?

AM: Upexi performed the first major equity private placement of the Altcoin Ministry of Finance. The popularity of models may be born from the success of companies like Upexi. This makes more companies want to adopt similar strategies.

Upexi employs the key value generation mechanism of micro strategy in the issuance of Acretive Capital, but adds other mechanisms such as staking to earn 8% yield, making the Treasury a productive asset and buys locked Solana with built-in profit discounts for shareholders. It is also based on assets that we consider to be the winner of Endgame, but at just 5%, in our view, there are far more potential benefits to Treasury assets over MicroStrategy.

CN: And finally, as a follow-up to the previous question, are you worried that the company’s exclusion from the S&P 500 index will invalidate an investment paper that resonates well with traditional equity investors?

AM: No, we’re not worried. The S&P Index Committee has discretion as to which companies will add to the index, and MSTR may be added in the future. We have added other companies that own Bitcoin in the past, such as Coin and Sq. I don’t think the fact that it wasn’t added during the rebalancing of the most recent quarter makes much sense.