This Company Is Giga-Bullish About Solana. But Should You Buy the Stock or the Coin?

Key Points

• Buying crypto treasury company shares means getting leveraged exposure to the coin.

• You'll pay for that privilege.

• One treasurer in particular might be offering a bit more than the bare minimum here.

• 10 stocks we like better than Solana ›

When gold prospectors ran out of shovels, savvy merchants filled the gap and sold them tools at a markup. Fast-forward to today, and a company called DeFi Development (NASDAQ: DFDV) wants to sell investors a different kind of pick, specifically equity in a corporate balance sheet stuffed with Solana (CRYPTO: SOL).

For those who remember Strategy turning its convertible debt into a Bitcoin stash, DeFi Development's pitch will feel familiar. The plan is to raise cash via issuing debt and equity, buy Solana with the proceeds, and then repeat the process. But this business is actually pursuing a broader mandate than the typical one-coin treasury project, which could create new revenue streams or perhaps just add risk. That raises the question of whether it would make sense to buy the treasurer, or whether it's wiser to just buy the underlying coin.

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Here's what's really going on and how to decide which side of this trade belongs in your portfolio.

This treasurer competes with a twist

First, the numbers.

After a fresh purchase of 47,272 Solana on July 7, DeFi Development holds 690,420 Solana worth roughly $109 million. Management stakes most of those coins across its own validator set, harvesting native yield that theoretically compounds the company's book value over time.

Second, let's look at the war chest.

On July 2, the company boosted a convertible note sale to $112.5 million, earmarking $75 million for an opportunistic share buyback and the rest for buying more Solana. This cheap debt juices returns for holders of the company's shares if Solana rallies. If it slides, shareholders eat the decline plus the note's 5.5% coupon.

Image source: Getty Images.

An interesting and perhaps decisive component of DeFi's strategy is the ecosystem play.

In mid-May, it linked with BONK, a major meme coin and meme coin-launchpad project, to co-run a Solana validator, marking the first public company and meme coin-node partnership. BONK will supposedly supply grassroots enthusiasm from investors for Solana itself, whereas the treasurer supplies capital and public market credibility.

The duo splits rewards and publicity alike, theoretically expanding staking income and thus demand for Solana.

It's this ecosystem collaboration that might make the business more than just another crypto treasurer without any economic moat. Teaming up with meme projects isn't any guarantee that the stock will do well whatsoever, but it could possibly be the start of a competitive advantage, especially if the business can attract new investors while simultaneously driving the capital appreciation of its main asset in the way that it aspires to.

Which is the smarter bet right now?

As of July 10, DeFi Development stock trades near $25.

Given it holds about $5.90 of Solana per share, buyers are paying a large premium for this stock. In comparison, one SOL costs about $158 in the spot market, and investors get exposure to close to 100% of the value of their investment even after accounting for fees.

The exposure gap here reflects hope that management will compound value dramatically faster than the coin itself. There is not yet any evidence that this management team in particular is capable of that even though a similar treasury approach has helped Strategy to perform much better than Bitcoin during the past few years. The premium also bakes in leverage risk; the convertible notes convert at $23.11, so a big Solana price decline could dilute equity just when morale is lowest.

Furthermore, leverage isn't free. Interest eats into staking yield, and callable debt can pressure liquidity during bear markets. Shareholders also face dilution from at-the-market equity lines that management has already registered, which is how this business funded earlier Solana buys.

None of those headaches apply to holding Solana directly, which would also give investors the option to capture the staking yield themselves.

That doesn't mean the stock is doomed.

If Solana rockets another 200% and staking rewards stay fat, DeFi Development's per-share crypto backing could outpace share issuance, shrinking the premium and driving an increase in its share price. A successful validator business or tokenized share listing on the Kraken crypto exchange, which is planned for later this year, might unlock new revenue too.

But those catalysts are speculative, not confirmed.

Therefore, logic favors buying Solana today and watching DeFi Development from a safe distance, if not ignoring it for now. You capture the same core thesis, which is to say Solana's speed, growing developer base, and rich ecosystem, without taking on convertible debt, possible dilution, or management execution risk.

If the treasury company proves it can add value beyond simple accumulation as a result of its partnership with BONK, the calculus can change. Until then, the coin looks like the cleaner bet.

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Alex Carchidi has positions in Bitcoin and Solana. The Motley Fool has positions in and recommends Bitcoin and Solana. The Motley Fool has a disclosure policy.