Problems at DeFi Technologies (DEFTF)
DeFi Technologies (OTC: DEFTF — $486 million USD / CBOE: DEFI — $667 million CAD) describes itself as “a trailblazer in enabling traditional investors to gain access to the highly potent and rapidly expanding digital assets sector.” The company is an amalgamation of various crypto assets and investors believe the recent crypto upswing will deliver major profits. Shares are up ~2,400% over the last twelve months and bulls believe the company can go much higher. The Bear Cave is skeptical.
The most profitable and most promising subsidiary of DeFi Technologies is Valour Inc, an asset manager that created several popular Exchange Traded Products (ETPs) for various cryptocurrencies such as Bitcoin, Ethereum, Solana, Cardano, Polkadot, and Avalanche. The company disclosed over $870 million in assets as of March 31, up from nearly $500 million on December 31, 2023. Below is an excerpt from the company’s interim financial statements filed in May. All figures in this table and article are Canadian Dollars.
Last month, crypto influencer Anthony Pompliano, who sold his Reflexivity Research platform to DeFi for stock, published a bullish article about DeFi and explained how Valour can earn great returns not just from fees on assets under management, but also from lending, staking, and market making:
“Because Valour is holding crypto-native assets in these ETPs, they are able to generate higher fee revenue from these assets. Instead of charging less than 50 basis points as we are seeing for the bitcoin ETFs in America, Valour charges 1.5% or higher to manage the more esoteric assets. Additionally, many of the assets give Valour the ability to generate yield from staking or other crypto-native revenue opportunities. Lastly, Valour periodically engages in market making for these assets which can generate additional fees.
By my calculation, Valour’s average fee generation on their AUM is approximately 7.2%. That is a monster number for the asset management industry.”
Bulls believe Valour will rapidly grow assets as crypto tokens rise, which will lead to a surge in profits as the business inflects and gains incremental revenue at very little cost.
A skeptic may argue that Valour is temporarily over-earning until new ETP competition gains share, the rise in altcoins is not sustainable, fees will be compressed over time, and the model of crypto staking and crypto lending for additional fee income carries real risk.
In addition to its exciting core crypto ETP business, DeFi has also made a number of direct investments in other companies including a ~$40 million stake in crypto bank AMINA. One of DeFi’s more peculiar ~$2 million investments is in Brazil Potash Corp, an early-stage potash mining project that is facing legal challenges from Brazilian prosecutors.
Curiously, in their regulatory filings, both Brazil Potash Corp and DeFi Technologies share the same address: “198 Davenport Rd., Toronto, Ontario, M5R 1J2, Canada.”
Another public company that uses the 198 Davenport address is Sulliden Mining Capital (Toronto: SMC — $2 million), a precious metals exploration company that has fallen ~98% over the last ten years. The CFO of DeFi Technologies, Ryan Ptolemy, is also currently listed as CFO of Sulliden Mining Capital.
In addition, Aberdeen International (Toronto: AAB — $6 million), a clean energy resources company, also lists 198 Davenport as its address. Mr. Ptolemy is also currently the CFO of Aberdeen International and DeFi’s General Counsel, Kenny Choi, is also listed as Aberdeen’s legal counsel. Aberdeen International stock is down ~85% over the last ten years and currently trades for about two cents.
A September 2023 street view from Google Maps, the most recent available, shows that 198 Davenport Rd is also occupied by Mintink Trading Cards, a small business that sells baseball, basketball, and Pokémon cards.
As always, The Bear Cave never bets against the companies we write about, only makes money from reader subscriptions, and conducts our investigations independently. Let’s dig in.