SharpLink and Upexi: Each with its own advantages and disadvantages in DAT

Foreword

I honestly don't know how I've gotten through this lately. The sheer volume of financial statements has almost overwhelmed me. I'm starting to doubt my love for numbers. Not because of the sheer volume of analysis, but because each of the six financial analysis reports I've written in the past three weeks has revealed information rarely found in company financial statements.

The financials of Digital Asset Vaults (DATs) are intricately intertwined with DeFi strategies, making analyzing company financial performance extremely challenging.

Upexi and SharpLink Gaming released their quarterly earnings this week, and they are the latest companies I've delved into financially.

On the surface, they seem like ordinary businesses: one sells consumer brands, the other engages in affiliate marketing for sports betting.

But only with deeper understanding will you discover that what truly influences their valuations, determines their profitability, and shapes their overall image is not warehouses or e-commerce platforms, but cryptocurrency. Upexi and SharpLink have entered a realm where the lines between corporate finance and cryptocurrency fund management are blurred. In today's article, I'll take you through the interesting things I've found in Ethereum and Solana vaults, and what investors should be aware of before getting involved with cryptocurrencies through these avenues. SharpLink's ETH Division Less than a year ago, I would have described SharpLink as a niche sports league marketing company, the kind that only comes to mind during the Super Bowl. Its finances looked no different from other mid-sized peers: meager revenue, performance affected by the seasonal fluctuations of sporting events, and a frequently negative profit and loss statement. There was no indication that the company had a $3 billion balance sheet. All that changed in June 2025 when the company rebranded itself by designating Ethereum as its primary treasury asset and becoming one of the leading holders of ETH. Since then, the company has restructured its Ethereum governance business, led by Joe Lubin, an Ethereum co-founder and founder and CEO of Consensys, who joined SharpLink as chairman of the board in late May. Over the past few months, SharpLink has shifted its focus to Ethereum by directly investing in native staking, liquidity staking, and DeFi protocols. Three months later, this shift is beginning to bear fruit. SharpLink reported quarterly revenue of $10.8 million, an 11-fold increase from $900,000 in the same period last year. Of this, $10.2 million came from staking income from its ETH vault, while only $600,000 came from its traditional affiliate marketing business. SharpLink's total assets grew from $2.6 million as of December 31, 2024, to $3 billion as of September 30, 2025. At the end of the quarter, Sharplink held 817,747 ETH, which increased to 861,251 ETH by early November. It is now the second-largest holder of ETH. Its revenue grew 11-fold, entirely thanks to this treasury. Nearly 95% of SharpLink's revenue this quarter came from the gains from its ETH staking. While its net profit surged 100-fold to $104.3 million, compared to a net loss of $900,000 in the third quarter of 2024, a problem lurks beneath the surface. Like most other DAT projects, all of SharpLink's profits come from the unrealized gains on its ETH holdings. This is because Generally Accepted Accounting Principles (GAAP) in the United States require companies to value assets at fair market value at the end of the accounting period. Related companies contribute very little to profits. Therefore, all these unrealized gains are essentially non-cash. Even SharpLink's earnings from staking rewards are paid in ETH, not periodically converted to fiat currency. This is precisely what worries me. While non-cash revenue is still accounted for as revenue, the company burned through $8.2 million in operating cash over nine months to pay salaries, legal and audit fees, and server costs. And where did these dollars come from? Like most other DATs, SharpLink funds its ETH holdings by issuing new shares. The company raised $2.9 billion this year through equity offerings, followed by a $1.5 billion share buyback mandate to offset equity dilution. This is a replica of the DeFi flywheel effect, which is becoming increasingly common in DATs. SharpLink issues shares and uses the proceeds to buy ETH. It stakes ETH to earn yield, and as the price of ETH rises, unrealized gains are credited, resulting in higher accounting profits, which allows it to issue more shares. This cycle repeats. As I've discussed in other DAT case studies, this model works well during upward cycles. Even through several bear market cycles, the model functions as long as the company's cash reserves are sufficient to cover cash expenditures. Rising ETH prices boost the balance sheet, the vault's value grows faster than operating costs, and the market gains a highly liquid, yield-increasing public proxy for Ethereum. This vulnerability becomes apparent when prices consolidate for extended periods (which is not new to Ethereum holders), coupled with high corporate costs. We've seen similar risks in the case of Bitcoin money management giant Strategy. I anticipate that almost all DAT projects will face these risks, regardless of which cryptocurrency they invest in, unless they have substantial cash reserves and healthy profitability to back their DAT projects. However, we rarely see profitable companies fully committed to the cryptocurrency space. We've seen this when Strategy chased BTC and SharpLink bet on ETH. The situation with Solana vaults is similar. SharpLink has almost completely transformed from a gaming affiliate into an Ethereum vault, and Upexi, even while retaining its old consumer brand shell, has embraced Solana. I've been following Upexi for some time now. Operationally, they've had positive results for most of the past five fiscal years. Brand acquisitions and revenue growth have performed well, and gross margins are satisfactory. However, from a corporate perspective, Upexi has reported net losses for the past four fiscal years. This may be what prompted the company to include digital assets in its financial statements. While this shift has been subtle over the past two quarters, it has been noticeable. This quarter, however, digital assets have become dominant in the company's financial statements. In the third quarter of 2025, Upexi's revenue was $9.2 million, of which $6.1 million came from SOL staking, and the remaining $3.1 million from its consumer brand business. For a consumer goods company that had zero revenue from cryptocurrency in the previous quarter, two-thirds of its revenue coming from digital asset staking is undoubtedly a significant leap.

Upexi currently holds 2.07 million SOL tokens, worth over $400 million, of which approximately 95% are staked. This quarter alone, they earned 31,347 SOL tokens as rewards through staking.

Upexi currently holds 2.07 million SOL tokens, worth over $400 million, of which approximately 95% are staked.

... The biggest difference between Upexi and other DATs lies in its strategy for acquiring locked SOL tokens. The company purchased approximately 1.05 million locked SOL tokens at an average market discount of 14%, with unlocking periods ranging from 2026 to 2028. These locked tokens are currently unsellable, resulting in a low trading price. As these locked SOL tokens unlock, their value will naturally rise to the same level as normal SOL tokens, allowing Upexi to both earn staking rewards and benefit from the built-in price appreciation of these SOL tokens. This approach is more like a hedge fund than a typical DAT. However, when you look at Upexi's cash flow, the same concerns resurface—similar to SharpLink. This strategy is typically found in hedge funds, not in ordinary DATs (Digital Asset Vaults). However, when you examine Upexi's cash flow, you'll find the same problem as SharpLink. Despite Upexi reporting a net profit of $66.7 million, including $78 million in unrealized gains, the company still recorded an operating cash outflow of $9.8 million. Since the proceeds from staking SOL were not converted into fiat currency, they remained non-cash income. Therefore, the company resorted to a measure typically taken by other DATs that rely heavily on cash reserves: financing.

Upexi raised $200 million through convertible bonds and secured a $500 million equity financing facility. Its short-term debt increased from $20 million to $50 million.

The same flywheel, but with similar risks. What happens if SOL cools down for a year?

... SharpLink and Upexi are both building some very clever products. But that doesn't mean they can sustain their success. There's a pattern I can't ignore: both companies operate logically sound financial systems when the economy is favorable. They've built treasuries that can expand with network activity; they've developed revenue structures that supplement their income streams; and through these initiatives, they've become top public agents on two of the world's most important Layer-1 blockchains. However, almost all of their profits come from unrealized earnings, their token revenues are illiquid, they show no signs of systematically converting treasury assets into cash to recognize profits, they report negative operating cash flow, and they rely on capital markets to pay bills. This is less a criticism and more a reality and trade-off that every company deciding to adopt a DAT architecture must face. For this model to continue, one of two things must happen: either staking truly becomes a cash engine for the company, continuously funding digital asset purchases; or the company must incorporate planned sales of digital assets into its digital asset strategy to achieve systemic profits. This is not impossible. Sharplink earned $10.3 million by staking ETH, while Upexi earned $6.08 million by staking SOL. These amounts are not insignificant. Even if a portion of them were reinvested in the fiat currency system to support operations, the final outcome could still change. Previously, Upexi and Sharplink faced the same dilemma: balancing extraordinary innovation with capital market liquidity.