Public corporations have begun moving away from the usual model where treasuries held cash balances and instead toward a model in which corporate treasuries hold digital assets.
Whereas Bitcoin was leading the charge a few years ago, Ethereum is gaining favor with institutions because it not only provides asset exposure but also enables participation in financial activities through blockchain technology.
Corporate Ethereum Treasuries have thus emerged, with firms such as SharpLink Gaming, BitMine Immersion Technologies, Bit Digital, GameSquare, and BTCS Inc. raising equity to acquire Ethereum (ETH).
What Are Corporate Ethereum Treasuries?
An Ethereum treasury strategy entails a firm storing ETH within its corporate reserve rather than using reserve funds solely for cash or other financial instruments.
The strategy is similar to the Bitcoin treasury strategy developed by Strategy (previously known as MicroStrategy). However, Ethereum offers additional capabilities beyond exposure to price appreciation.
According to the Ethereum Foundation, Ethereum has become a programmable finance platform that facilitates applications and assets.
Some of the key aspects include:
- Maintaining ETH as a reserve currency.
- Acquisition through equity financing.
- Participating in staking to earn protocol rewards.
Why Corporations Are Investing in Ethereum
There have been multiple reasons why corporations have been buying into ETH treasuries. The primary ones include gaining long-term exposure to Ethereum, diversifying treasury holdings, and participating in tokenized financial markets.
The Ethereum network offers staking rewards that generate yield, which is distinct from Bitcoin treasury models, which rely primarily on price appreciation. Companies can also benefit from decentralized finance (DeFi) and tokenization projects that have been developed on Ethereum.
According to CoinShares, the number of institutions interested in investing in Ethereum has grown due to the opportunity to take advantage of staking and tokenization, as well as the emergence of spot Ethereum exchange-traded funds.
Concentration Risk of Corporate Ethereum Treasuries
The phenomenon of concentration risk is characterized by an increasing portion of Ethereum being held by a relatively small number of corporations. With more businesses purchasing ETH for their treasuries, the amount held by these companies increases, potentially reducing the amount of ETH readily available for trading.
If such a trend continues, a few publicly traded companies could own a significant share of the ETH held in corporate treasuries. Moreover, a lower amount of readily tradable ETH could affect market liquidity, particularly during periods of elevated selling pressure.
Glassnode highlights that variations in the balance of large wallets could have a significant impact on market liquidity and sentiment, making institutional accumulation a relevant indicator to monitor.
Staking Impact and Network Participation
Several organizations that employ treasury strategies for their Ethereum holdings also engage in staking. Staking provides the ability to earn rewards from the protocol while participating as validators in the Ethereum network.
With more treasury ETH being staked, a portion of those tokens becomes less readily available for immediate trading. According to Lido statistics, the staking process continues to account for a significant amount of ETH, contributing to the growth in the number of validators.
Though larger token holders could encourage validator activity, Ethereum protocol updates are not decided by token holders alone. As the Ethereum Foundation states, network upgrades are based on community consensus rather than token voting. Nonetheless, large treasury holders might have some influence on other matters within the ecosystem.
Comparison of Ethereum and Bitcoin Treasuries
Ethereum treasuries resemble those used for Bitcoin through Strategy in terms of leveraging public capital markets to finance digital asset acquisitions. On the other hand, Ethereum offers an additional feature in that organizations can stake their tokens to earn rewards and participate in the network.
This distinction means Ethereum treasury strategies combine reserve asset management with opportunities for protocol participation, whereas Bitcoin treasury strategies generally remain passive balance sheet investments.
Is the Risk a Problem Today?
The number of corporations that own Ethereum continues to grow, although these companies still represent a limited portion of the total supply of Ether.
The further adoption of Ethereum treasury strategies by other publicly traded companies will make ownership concentration, the amount of ETH held by corporate treasuries, and staking activity increasingly important metrics to monitor.
CoinMetrics continues to monitor on-chain ownership metrics, which can serve as one indicator for evaluating ownership concentration in major cryptocurrencies.