DeFi Development Corp. (DFDV) Earnings Call Transcript & Summary

Yes, of course. Thanks, DK. So on the use case front, I mean, there's always various different sectors and verticals we're keeping our eyes on. But as of late, it's really centered around agentic finance and agentic payments as well as just general adoption of tokenized equities or real-world assets itself. Meaningful interest in both of those sectors on Solana. We really do expect those trends to persist in the quarters ahead. Switching over to just kind of network upgrades itself. In May, Alpenglow, which is actually going to be one of the network's biggest upgrades ever that's going to take finality from 12 seconds down to 100 milliseconds, which is going to be on par with Visa, actually entered into community validator testing. Not only that, but in July, we also saw a validator registration open up, marking yet another kind of step towards what is expected to be, say, an August or October launch. So that is going to be a meaningful lift in terms of performance, and we really started to see a lot of progress made over the past several months. Not only that, there was another big upgrade to the network that caught people's attention. Compute limit was actually increased by 66%. So a big lift in performance as well. And that's effectively going to just allow more room for the network to process activity during higher periods of chain demand. There's been 2 other kind of developments, too, that I'd like to focus on, and this is really centered around also the value accrual and capture of the token itself. So there was 2 SIMDs or Solana Improvement Documents that entered the discussion phase ahead of what is soon going to be a vote. There was SIMD-0550. This is centered around reducing the network's inflation schedule by increasing the disinflation rate to get to its 1.5 terminal inflation rate in half the amount of time. So that's on the supply side. Now on the demand side, there was another SIMD, SIMD-0553. Instead of the network relying on flat transaction fees, it's actually going to introduce resource-based fees that are burned. So this is just going to create a much stronger link between network activity and SOL value accrual. And we've wrote extensively about both of these Solana Improvement Documents. So feel free to check out the blog to learn more.

Thanks, Pete. I'll also say for any investors tuning in, you should feel free to reach out to us to nerd out about any of these things. Pete and I are always happy to hop on the phone and chat through this stuff. It's really fascinating. So all right. Next question. Recently, the Treasury Accelerator was framed as proof of a culture of experimentation that peers couldn't match. Then DFDV UK shuttered, now it's closed. What did you learn? What are the remaining positions? And how do investors know the next strategic initiative won't follow the same arc? I'll take this one, guys. So I actually think the program proved what it said it would prove, but that doesn't mean that shutting it down isn't the right thing to do at this point in time. So what do I mean by that? If you look historically at some of the wins, right, ZeroStack was a good win for us. The way it was structured as a SOL-denominated convert, no upfront cash out the door. We recovered the foregone yield, and settlement was accretive to both NAV and SOL per share. I think that was like a very clear example of the types of bets we like taking, right, with really good asymmetric risk reward. And Allied Architects, which we announced recently was similarly structured with small upfront cost, good optionality attached. So we don't think our thesis on, let's call it, DAT-on-DAT investment was wrong. What it did do in hindsight was make our story just a little bit harder to tell. So for example, an investor trying to underwrite DFDV would then have to also go and underwrite a U.K. vehicle or a DAT-on-DAT convertible note, right? It would just introduce some additional layers of complexity. And in a market where debt prices are obviously compressed and investor attention is scarce, complexity just becomes an unnecessary barrier, if you will. So we do want to be clear that on our remaining position with Allied Architects, we're not dumping it. So when we have something to share there, we will, and we do expect this to be accretive to SOL per share. But look, I think in our letter, we made it pretty clear that anything we do has to sharpen our identity as leveraged SOL exposure rather than dilute it. And I'd point you to what we did this quarter rather than what we've been saying on this front, right, whether that was publishing the SOL Boost framework that puts us front and center, shutting down the TA program that we feel had some pretty good wins as well. And then, of course, making it clear that we were going to, I'm going to say, minimize the complexity of the business, whether that's finding some additional efficiencies to cut costs or minimizing our overall onchain surface area so that investors didn't have to underwrite smart contract risk at like very small protocols. We do have a pretty high bar for anything outside of, let's say, the core business, SOL purchases right now, and you should expect that to remain the case. All right. Next question. Your organic yield thesis assumes somewhere around 8% to 11% is a normal range versus today's lower cyclical troughs. But native staking APY is down year-over-year. And your own Solana Reborn research argues for network changes that push the net issuance closer towards 0, which would compress staking rewards further. What gives you confidence that you will return to higher yields over time? Joseph, do you want to take that?

Sure. Yes. Thanks. First, our organic yield has never been just the base stake rate because we run our own validators and the validators are fairly high performing. And then historically, we've generated additional yield through onchain deployment, namely staked SOL looping as the primary strategy, and we expect to continue to do that going forward. Staking yields have compressed. That's true. And today, somewhere between 5.5% and 6%. But like I said, we're definitely generating more than that. And the compressed yields that we've seen recently are a function of network activity rather than something structural in the tokenomics. And the whole point of reducing Solana issuance is bullish for the asset. And the SIMDs Pete described, if those came into effect, we think it would drive value to Solana. And even if the yield on the treasury went down, for example, we'd rather earn 6% yield on SOL at $500 than 11% yield on SOL at $75. So the yield percentage isn't really the number that matters for us over the long term. What matters is the dollars of yield relative to dollars of cost base.

Thanks, Joseph. All right. Next question. Can you discuss the Solana blockchain metrics such as contract developers, transaction counts, et cetera, that give you confidence in your thesis? Pete, do you want to take this?

Yes, of course. So I guess real quick, the question is what is the thesis? I think everyone has kind of a little bit of a different thesis as it relates to Solana. But for us, in particular, we're really under the belief that Solana is effectively the one and only chain that can do it all. We don't know necessarily what sectors and applications will achieve mass adoption tomorrow, but we do know that the industry is here to stay and set to disrupt various different centralized applications. And Solana is, as of right now, the only chain that's capable of housing those applications, and we've seen this time and time again. And so the question is, where is the proof of that? We can look at none other than transactions per second or TPS as we like to say in the industry. For the quarter, we saw 9% growth year-over-year at nearly 1,300 transactions. And actually, as of the time of recording, we're just under 2,000 transactions. So continue to see really good performance on a day-by-day, week-by-week basis. I do want to point out that over the past 5 years, Solana TPS has grown nearly 600%. And this compares to just under sub-200 transactions per second when Solana had just launched. It's also worth acknowledging too that all other chains effectively remain under 50 transactions per second. So this is not only just signaling an inability for these chains to scale as they've all promised all over the years, but really failing to live up to this industry expectation that, again, DeFi apps will be able to 1 day surpass centralized applications and take over. Another metric that we can look to for superior performance for Solana is the median fee and the median fee volatility. So Solana remains the lowest across both fronts. And actually, we developed our own proprietary indicator or a measurement called the Fee Stability Ratio, FSR. And again, this looks at not just how low fees are, but how consistently low fees are because a lot of times in the industry, we'll see competing chains say, "Oh, we achieved X level of average median fee," and that doesn't last long. And so we developed this indicator to basically help read the consistency of low fees and Solana came in for the quarter at a reading of 650. For some comparison, the second ranked chain was Base at a score of 30 and none other than Ethereum itself sits at a score of 1. So a meaningful difference across the board. For the reading itself, this does mark on a quarterly basis, more than 400% increase year-over-year. And that's something that we think folks should really be paying attention to with time, and we do expect it to improve. The last other metric that I would point to is proof that Solana is the chain that can do it all. Solana was able to, last quarter, notch what is finally 2.5 years of being 100% up and running. There have been several instances in the past where the network experienced outages, scaling problems and was really criticized for being a chain that couldn't stay up and running. And here we are 2.5 years later, the network has experienced some of its craziest burst of demand that the industry has ever seen and is still alive and kicking. And so while those are some of the metrics. I do want to also acknowledge that Solana is where the innovation is going to live and breathe, and this can be seen in the recent adoption and just boom as it relates to tokenization in the real-world assets. So for second quarter, Solana actually notched nearly $9 billion in tokenized equity volume. That is twice as much as the second most active chain and represents a near 350% increase quarter-over-quarter. So really promising, really exciting to see. And we think investors and market participants should be paying close attention to some of these metrics with time.

Thanks, Pete. Speaking of tokenization, what is the update on the Apyx investment? I'll take that one, guys. So nothing to share at this moment in time. We do continue to be excited by all things that relate to tokenization and Apyx is, by our measures, the largest single holder of tokenized equity in the world via [ smart contracts ]. Obviously, also just launched on Solana, which we're incredibly excited about as well. And the project has made it clear they intend to do some other, I'm going to say, more exciting and innovative things in the weeks and months to come. So stay tuned. All right. Last one, guys. If I want SOL exposure, I can buy spot or increasingly an ETF with no operating costs and no balance sheet risk. Make the case for owning DFDV instead. I love this question because the answer is actually very simple. If you want SOL, go and buy SOL. We're not going to talk you out of it. We love buying SOL. It's a core part of our business. Spot is a great product and ETF is a great product. But you should know exactly what you're buying. You're buying SOL minus a fee basically for forever. There's no mechanism in a spot position or an ETF that gives you more SOL over time. You will end up the next year or 5 years out or the next decade with the same number of coins you started with, again, minus fees. DFDV is fundamentally a different instrument. It is amplified or leveraged SOL. So every share of DFDV is backed by SOL and the amount that SOL per share grows over time, SOL per share, and it's up north of 20% over the trailing 12 months and was up triple digits in 2025, all through a bear market. And on top of that, we have the ability to run leverage. So what you're getting is the SOL move, SOL price move over time, plus leverage on that move, plus the compounding of SOL per share growth underneath it. And that is effectively what we refer to as SOL Boost. And I'd argue, again, that structure matters most here, particularly at the bottom of the market because we got through the worst of this without being forced to sell SOL. So if your view is that SOL is going to be meaningfully higher 3 years from now, 5 years from now, 10 years from now, the way we have a very bullish outlook on SOL, you just need to ask yourself whether you want 1 unit of it or a structure that's built to give you more than 1 unit over time. And that's effectively what DFDV is. All right. With that, that is the end of our Q&A. So thank you, Joseph, John, Pete, for your thoughtful responses. We thank all the listeners for tuning into our earnings call. And as always, please do not hesitate to reach out to us if you have any questions in service of SOL per share growth. We'll see you all next quarter.

Thank you.