Many Crypto Treasury Companies Were a Get-Rich-Quick Trap, Columbia Professor Warns

The Columbia professor warns that many DATs have been launched as get-rich-quick schemes.

Professor Omid Malekan of Columbia Business School said any analysis of why cryptocurrency prices continue to fall must also include Digital Asset Treasuries (DATs), as they appear to be a massive extraction and exit event in total, which is one reason for the price drop.

He said there are a few exceptions, but he added he can count them on one hand. Meanwhile, “dozens and dozens” were launched in a way that would likely cause value destruction for crypto assets. He argued that, based on his interactions, many of the people who launched DATs saw the model as a get-rich-quick scheme.

Inside the DAT frenzy

Malekan pointed to nervous investor presentations that glossed over key details, the excessive use of empty buzzwords and the lack of fundamental disclosure, including who was getting paid. In his tweet, the professor said the intent behind many of these launches was clear.

Malekan explained that launching any form of public entity is expensive, and that the money required for the shell/PIPE/SPAC runs into the millions, as do the fees paid to all the bankers and lawyers involved. He pointed out that the money spent on these fees had to come from somewhere.

He also said there were shady “consulting deals” that many DATs had entered into, which were rarely disclosed in the marketing materials, and noted that the money spent on them also had to come from somewhere. He also shed light on the inherent conflicts of interest of DATs that appoint founders or VCs to their boards and then funnel shareholder money into their startups or PortCos.

Malekan said the biggest damage DATs did to the overall crypto market cap was by providing a massive exit event for supposedly locked tokens, and he said he’s still surprised that so many other investors weren’t upset about this. According to him, many alts had much larger circulating supply, and markets are a discount mechanism, and the easiest thing to discount is “more supply than expected.”

VanEck identifies weaknesses in the DAT model

Last month, VanEck warned that the DAT model is risky because it is directly dependent on volatility, and volatility in Bitcoin structurally decreases as adoption increases. According to the global asset manager, a DAT requires constant price fluctuations to finance asset purchases, and a long-term trend toward muted volatility threatens the core economics of the model itself.

You might also like:

VanEck also identified structural market problems within this segment, noting that many of the newcomers do not have deep or liquid enough options markets to efficiently price risk. This could ultimately reduce the “volatility sink” and reduce DATs’ ability to purchase assets.