As a part of the new direction of LeoStrategy, the board members are asked to make 1 blog post per week from the @leostrategy account. Any of us can write about any topic we want. Some may be more financially focused, others may be more high level. Today's post is written by Khal @khaleelkazi who has recently been elected as Chairman of the LSTR Board.
Lions,
I've been a close observer of what Microstrategy and other "Bitcoin Strategy" (and more recently, ETH Strategy) companies have been doing.
Yesterday, Microstrategy released a new preferred stock: Stretch. They're raising EVEN MORE capital to buy more BTC.
This product is a yield-bearing stock that capital allocators can buy for a ~10% yield.
It's fascinating to see the rise of these Strategy companies and it is also fascinating to watch how Microstrategy continues to evolve their Strategy to simply acquire as much Bitcoin as humanely possible.
This, in my opinion, is still the early stages of a financial revolution in TradFi. Who knows how this experiment will end, but what I see happening is an explosion in Bitcoin and Ether treasury companies. As other cryptos mature, I believe we'll start seeing them for SOL, ARB and many other top coins as well.
LeoStrategy: A Strategy Company for LEO
As I've watched these evolve, LeoStrategy has become more and more important in my eyes. LeoStrategy IS the same as these companies - but for LEO.
In my opinion, building LSTR into an extremely successful vehicle with the same mandate as Microstrategy (but for LEO) is vital: LeoStrategy's mandate is to:
- Buy as much LEO as possible
- Focus on driving value to shareholders (denominated in LEO terms. a.k.a. increase the value of how many LEO = 1 LSTR)
- Never sell LEO
The 3rd point is obvious: the mandate of buying as much LEO as possible and increasing the "LEO Per Share of LSTR" value means you never sell LEO (as that would decrease the amount of LEO per LSTR share).
LSTR can never sell the LEO it holds. It is impossible for two reasons:
- The company's foundational mandate is to acquire as much LEO as possible and never sell it
- The company's wallets on Arbitrum are managed by Multi-sig and require board approval
Since I am chairman of the board, I will never approve the sale of LEO from LeoStrategy. I am sure other board members would attest to the same and also never approve the sale of LEO. We are all LEO holders and we are all LSTR holders. It'd be shooting ourselves in the foot to go against the mandate.
I have seen some on INLEO saying that they don't trust the "can never sell LEO" idea. I found it important to write this post in response.
LeoStrategy is incapable of selling its LEO for the two reasons outlined above, I wouldn't get involved now if I didn't see that as a guarantee.
Financial Engineering and Selling the Initial Sale
With that housekeeping out of the way, I am closely observing what happens with Microstrategy and other "Strategy" companies. I believe there is a lot to learn out there about what can be achieved with LSTR.
The initial sale is simply the beginning of LSTR. This project was founded by the community, for the community.
The mandate to buy up as much LEO as possible is barely scratching the surface of what is possible.
Once we see the initial LSTR sale get sold out, @leostrategy should hold roughly 1.5M - 2M LEO (depending on how fast it sells out and the average price of the LEO it can buy at - LEO is rising fast).
100% of this LEO will be staked on https://leodex.io to earn USDC rewards every day. Then, 100% of that USDC will buy more LEO each day and stake it (compounding for more LEO).
This means that every share of 1 LSTR will ALWAYS be worth more LEO every single day.
If LEO rises in USD value, then LSTR rises exponentially in USD value because the value of 1 LSTR:LEO is always rising.
The financial engineering part gets interesting. This is where other offerings, products and revenue streams can lead to more (and bigger) acquisitions of LEO.
I see a future where LSTR buys and permanently holds millions of LEO and uses this massive stake as the basis for more products, offerings and revenue capture to acquire ever-more LEO. Making LEO harder to buy, more expensive and benefitting all LEO holders.
This is the early stage of something beautiful and I am excited to see where we can all take this as a community-operated version of "Microstrategy".
mNav Discount vs. Premium
As of right now, the LSTR token is trading at a ~2% mNav Premium. This means that buying 1 LSTR is a 2% premium to just buying LEO yourself.
The key is that this is about to flip to an mNav Discount.
When LSTR is trading at an mNav Discount, it means that the LEO held in @leostrategy is worth MORE than the outstanding shares of LSTR.
This means that buying 1 share of LSTR is essentially a guaranteed profit when the initial sale sells out.
How?
When the sell wall is sold out, LSTR will open a pool on Hive-Engine for an LSTR:LEO pair. This pair will open at fair market mNav (1:1).
For example, let's say that the mNav discount of LSTR is 0.50 by the time the LSTR sell wall sells out.
This means that LSTR will be priced in the pool at 2x the value it is currently selling for in the sell wall (4.25 HIVE/LSTR).
Understanding mNav Premiums vs. Discounts is extremely important and it is also a lot easier than you think:
Simple take the total market cap of LSTR shares outstanding (100,000 - the sell wall = ~26,000 right now) * $1 (current LSTR price) = $26,000.
Then take the current value of LEO that LSTR holds (about $25,000 right now) and divide $26,000 by $25,000 = 1.04 mNav (4% premium)
I rounded these numbers for simplicity.
When Will LSTR Sell Out?
I hope the LSTR initial sale sells out sooner than later. LEO is rising and the faster LSTR sells out, the cheaper it can buy the permanent LEO capital base that it is trying to raise.
When LSTR reaches an mNav Discount, it will be an instant-profit arbitrage to buy LSTR. I believe the sell wall will sell out quite quickly once the discount happens and is realized by the ecosystem.