Sol Strategies Inc. (HODL) Earnings Call Transcript & Summary

Again, very much good afternoon, ladies and gentlemen, and thank you for joining us today for our Investor Webinar of Cypherpunk Holdings. As always, I would like to welcome all of our existing and potential shareholders. My name is Veronika Oswald. I'm the Director of the Investor Relations for the company. And I'm today joined by our CEO, Jeff Gao; and also by our CFO, Doug Harris. And they will both give you an update on our recent activities, and we will also be discussing the financial statements, which have been recently published. I would also like to add that this webinar is being recorded, and we will also try and make this an interactive session. So please feel free to submit your questions into the Q&A box. I would suggest the Q&A box is probably more suitable than the chat box because that will let us monitor the questions much easier. And we will take all of the questions at the end of the presentation. I hope you enjoy it, and I would like to hand over to Jeff to really start.

Great. Thanks, Veronika. And just before we kick this off, this is our third investor monthly catch-up. We didn't do one in January, because not much happened then. But -- there was a lot of talking from me, in fact, mostly talking from me in the first 2 webinars. Going forward, these sessions are really about you guys. I will keep my side a bit short, keep it brief, give you enough information and enough color commentary so that you understand exactly what is happening at HODL for the month in question, in this case, February. And then it's up to you guys. So these really -- these sessions are designed for you, and that's the way we want to run it going forward. Any feedback you have in terms of how you guys want us to run these, please, please feel free to send it through to Veronika, and we'll definitely take that on board. All right. Veronika, can you see my screen?

We can see the screen. Thank you.

Right. Excellent. Standard disclaimer, please take some time to go through this in your own time. And these slides as well as a recording of this presentation will be available to you after the meeting. So what we're going to go through today is a quick snapshot of the 2021 financials. Doug and I will be here to take your questions at the end of this presentation. Questions in relation to the financials, I'll probably hand those over to Doug and anything in relation to all the other topics that we're going to cover today, more than happy to fill those. We're going to look at in more depth, clarification around our strategy and vision, a lot of which I've touched on at a high level in the previous call, but be able to go into more detail today and specifically talk about some of the investments that we've made and the milestones that we have achieved with respect to those investments, which we've only onboarded very recently. We'll talk about treasury management and how we intend to run that going forward and how that manner of running treasury, an active strategy will distinguish us from the other players in the market. We'll talk about venture capital, which is our second line of effort in addition to private equity and venture, and then more specifically around the risk management aspect of treasury as well as the diversified yield generation. And then we'll open the floor to questions. So I won't labor on this too much. Again, you guys will have the slides to read. But basically, the gist of the story is FY '20, not much happened. In terms of comprehensive income, it was under CAD 400,000. FY '21, predominantly the runaway prices in crypto in general and primarily in Bitcoin, which we were heavyweight-ing, generated an unrealized -- a significant unrealized gain, which resulted in a comprehensive income that was orders of magnitude greater than FY '20. So that's basically what happened. Bitcoin went up, our numbers went up. That's basically the gist of the story. But any specific questions in relation to this, we'll be able to cover that in more detail in questions and answers. Our balance sheet looks great. We went from what is effectively micro assets under management to now at the height of the crypto run-up early November last year, CAD 35 million to CAD 40 million total assets under management. There's a lot we can do with those funds, and I'll talk to what those plans and strategies are further down. But Cypherpunk is, from a balance sheet perspective, in a great position to start generating results, and we've got a plan around that. Had to divest from certain investments, which were no longer core to us and which were no longer delivering results, Sixty Six Capital is one such example. And going forward, that process of rationalization will continue until we arrive at our core position, and I'll put some color commentary around that further down as well. Animoca was a great win, I'll talk about that in detail further down. So with Animoca, Tony G, then CEO, who is currently our Chairman, got us the deal off market. We went in at AUD 1.10. We sold our first tranche at just under AUD 4. So that's a 241% realized gain over a 5-month holding period. We've subsequently sold more. We subsequently sold more at a higher price, and we will continue to do that into strength. We will retain a portion of that in the lead up to the IPO. So that's just looking at it from a probabilistic basis in terms of where we think the share price is going to be versus the amount of carry, the amount of risk that we have with this particular opportunity and then some of the other opportunities that we may have, that is also -- that would also require capital. So the balance of all considerations is what drives how much Animoca we want to risk off and how much we will want to keep heading into this expected IPO. So GOAT, the Greatest of all Time, is Cypherpunk's debut into the metaverse. And I've written a lot about this in the CEO's blog. But just to keep it simple, crypto -- the metaverse thematically is growing, and it's going through a process of creative destruction, where there is as much ponzies, if you will. There is as much fluff and vapor as there are opportunities. But where you do find opportunities, where you do find that diamond in the rock, it can't really run. And we think that we've got one of those. So to put it in very basic terms, one, the metaverse has different shades to it. And each subsector has its own idiosyncratic risks and reward. One aspect of the metaverse, which is growing extraordinarily aggressively is crypto gaming. It has its issues, but it's not an opportunity that we can ignore. And we were in the market to look for a partner that can deliver a product which we would envision, which would eventually become sticky in this subsector. And recently partnered with GOAT because they had an aggressive business plan. They already had a lot of sunk capital in terms of [ sub-equity ] built into the product, and they were ready to go. And I think the results speak for themselves. Animoca Brands invested in GOAT as well. We are a co-leading investor. They're the biggest investor. We're the second biggest. We have a strategic position in this play. And there's a lot of good things happening there at the moment. In fact, I catch up with the founders almost on a weekly basis, just to see how well they're tracking against their milestones and what additional support they need in terms of the opportunities we can bring them to grow their network. So what they do is there is a total accessible market of about 3 billion people that are within the play-to-earn space. And the definition of a play-to-earn metaverse participant is you play a game to earn the money, you don't necessarily enjoy it. Maybe you do, maybe you don't, but you're not there for the enjoyment, you dare for the gig economy. That is the audience we are currently targeting. Now if that is all crypto gaming is going to be going forward, if that is all the metaverse is going to be going forward, it is completely unsustainable. But it is at its very early phase of the growth stage, and this is basically how you get the network effect. Within this current regime, that will need to change going forward, and we will change and we will roll with the punches as they come. But this is the stage where they're at. And we need a way to galvanize and access as much of that TAM as possible. So GOAT has reached out predominantly to players across third world countries where there's no at lot of social mobility. And the opportunity there is -- to play a crypto game, you need to have gained assets, right? You need to -- if it's a horse racing game, you need a horse in it. If it's an F1 Formula 1 racing game, you need a car, right? You need assets within the game to interact with the gaming environment to achieve the objectives of the gaming. If you do so, depending on how well you do that, you get rewarded. In this case, you get rewarded in the token within that ecosystem, which you can convert to feat, if you wish to do so. And so players need to participate. To participate, they need these assets. And these assets are expensive. One, most popular crypto game at this moment is Axie Infinity. To play Axie Infinity, you need 3 axies, which is these little Pokémon type animal characters with mythical abilities. And you harvest them, you train them up, you go into arena and you battle other players. That's basically the gist of the game. Each axie is between $800 to $1,000, and you need at least 3 of them to start playing, which means that there is a barrier to entry, if you're from a country like Vietnam or the Philippines or Indonesia, and you don't have $2,500 lying around. So what GOAT does is, is they come in and they will loan the assets, interest free. And you use those assets and you play the game, and there's a revenue sharing model. The revenue share is a 30:70 split, where if you're a mediocre player but you're good enough to be part of the GOAT community, you keep 30% of your winnings, GOAT keeps 70%. If you're one of their top tier players, you keep half, GOAT keeps the other half. GOAT is currently developing a platform where there are other innovations as well, such as income stabilization as well as play to earn. The idea behind income stabilization is in some of these metaverse economies, there is a lock-in period where as you play the game, in order to access your winnings, you need to wait a certain interval. In the case of Axie Infinity, that is 2 weeks. But what if you want your salary in advance, right? Then GOAT will basically produce what is effectively -- and this is something I'm assisting them with -- a cash equivalent -- a certainty equivalent cash flow, where you can access part of your winnings in advance despite the fact that they're still locked in the system. So that's just a lending platform, if you will, or a lending feature. And then there's also a play-to-earn, which is to say, what if I want a salary sacrifice. And then I'll put away part of it, so that eventually, these NFTs that you're currently loaning to me in order to -- for me to participate in this ecosystem, eventually, I will own them as well as a result of that incremental salary sacrifice. And there's a number of different ecosystems that these players have been deployed to. Axie is the main one at the moment, because it is the largest, but others as well, where there are high yield generating opportunities. What have they done? They launched -- I'll go through some of these numbers. Now these numbers are already out of date that were put together 1.5 weeks ago and they are already out of date. Revenue growth has ticked up. So it's at least 15% per day now. They have partnered with almost 3,000 gamers at this point. That's an indication of how aggressively they're growing. And this is 30 days after launch, by the way. So I should clarify that. 30 days after launch, then we're doing $1.5 million in annual recurring revenue, growing at about 15% per day. And the genesis of big features that I've talked about, play-to-own and then income stabilization, they've started to build out manually at that point in time, but more and more so becoming automated. In fact, the platform is probably going to be 95% complete in a couple of months' time. 70 days after launch, which is about 10 days ago, they have unlocked $3.5 million run rate, and they are on track to produce an additional $3 million in run rate within the next 30 days. That was 2 weeks ago, they're well on their way to that target now. In fact, GOAT, I've spoken to one of the cofounders, Phil, just yesterday, they're currently doing $400,000 in revenue per month. You just got to multiply by that 12 to get the run rate. So they're doing pretty well. And some of their games earn more than others, but there's -- it's a smaller network. So there's a portfolio allocation thing that they've got to do in terms of which games they want to deploy their players to, which NFTs within that game they want to put money on, include that in the vault, and that will basically be their tool set, their capital that they can deploy to these games to generate an implicit yield, and also which players they want to be to have part of the GOAT community. Because it is really about -- given such a big TAM -- recruiting the best and making sure that these players can really perform and they're actually worth the time that GOAT is going to invest in them to make them as good as they can be. There's a training and education piece as well when players are onboarded to make sure they're going to understand the gaming ecosystem and they can really perform in these games. So there's 10 countries they're currently expanding to, or have already expanded in rather, and they're looking at other places around the world as well. It's a very decentralized model, where they have managers on the ground that manages these clusters. And so it's a self-organizing organism on the ground, if you will, and then GOAT provides the high-level support. So it's extremely decentralized and managers on the front lines are highly incentivized to ensure that they pick the right players. So that's our metaverse entry. One more note about that is [ GOAT DEL ], a private token sale is going to be released soon. And the indication is it's already oversubscribed. They're going to raise about CAD 6 million to CAD 10 million in that route, so that they can deploy to additional NFTs and maintain this aggressive exponential growth. And then right after they close that round, they're going to do their Series A. Indicatively, -- and this is indicative only, they're targeting a valuation of CAD 50 million. We went in at a valuation of -- can't recall off top my head, I think it's about CAD 2 million, CAD 2.5 million [ post money ]. Now some of our other players have started to yield. Wasabi Wallet is paying a dividend. We have 4.5% of the company. It's a very well company. Not an opportunity that I've brought on board, but I've been advised that they're doing really well, and they're paying basically an annualized rate of about 32% when you look at the -- when you look at a reference level of $40,000 per Bitcoin. So that's doing pretty well. Samourai Wallet, likewise, there are a later start in Wasabi in terms of when they first started to pay the dividend, which was late last year, but that's -- they've begun that as well. We expect that to be recurring. The first dividend that was paid BTC 0.26 effectively means an annualized return of about 10.4%. But we really won't know what that looks like from a long-term perspective until we get a few more of these coming in. And then also into our proof of concept into crypto mining to see how well that works, we've invested $300,000 just as an idea to try it out with MiningStore. This is using S19j Pros, which yields about 100 to 110 terahashes per second to mine Bitcoin. It's netted about BTC 0.43 bit to-date, which before you depreciate and amortize equipment, is effectively 34% annualized rate of return. Now the question is, how long will that equipment last? In terms of mining, there's really 3 different types of cooling technology that will affect the useful life of the miner. And that is probably the most important determinant in terms of the net present value or that total cost of ownership when you look at mining as a project, or should you onboard it or not. And a typical passive air-cooled miner will have an effective useful life of 3 to 5 years depending on how well you insulate it from the elements. Water called units will push beyond 5 years, so somewhere between 5 to 10 years. And then something called 1 in 2 phase immersion cooling, where you basically -- it's like a power transformer. You immerse the ASIC boards in a dielectric fluid, which is an oil-based solution. And then you call it that way as a result of the oil evaporating when it heats up. So that's a more expensive setup with more expensive maintenance. But if you do that, typically you can push the useful life of the ASIC boards 10 years and beyond, even 20 years, in some cases, based on projections. These -- with MiningStore, it's just passive air cold. So it's the easiest form of cooling. Which means that the useful life of the miner will -- it will come at the expense of the useful life or the effective life of the miner. So we're just trialing that to see how that works. My expectation is if you look at the lower end of the spectrum and the useful life is only 3 years. After 3 years, basically, we have to salvage them. There will be a significant salvage value, because there will be other buyers out there who would want to use these for purposes maybe for their own mining but potentially for other -- as a compute resource for other applications. So there is significant residual value even when you sell these things. It's unlikely residual value of 0. But if you ignore that residual value, about 34% drops to somewhere between 3% to 5% annualized rate of return, which is a pretty aggressive drop, but that's not including the residual value of the equipment. So we're still trialing this one just to see how it works. We may or may not keep this as a line item going forward, depending on how that pans out. Okay. Now this part is quite important, because it relates to our treasury management, which is all about Bitcoin and Ethereum. It is really the mainstay of what HODL is, was and potentially continue to be so, which is an aggregator of Bitcoin and Ethereum. But the issue with that is I think for anyone who's been watching the news, who's been up to speed with recent events, the time when you're able to use a publicly listed entity as a holding company for Bitcoin and Ethereum and just HODL, and that's all you do, I think that's coming to an end, because there's no offer in doing that. It's very easy for you to do that on your own end. Why would you pay a company to do that for you, right? If that is all HODL did, nobody would invest in it. I certainly wouldn't do it. And I'm not sure any other rational investor would do that. So we can't just HODL these coins. We have to put them to work. And also, we have to risk manage them. So what are some of the aspects of crypto, that are both risks and opportunities? Well, the risk is the aggressive drawdown risk. We saw that happen from May to July of 2021. We just saw that happen from the mid of November last year to about a week ago before it started to really correct that changed trajectory, which happened over the weekend. But that drawdown risk is aggressive, and you want someone like HODL to be able to manage that for you. Otherwise, there would be no reason to invest in us. So we are looking at that. We are looking at structured product solutions. We are looking at algorithmic risk management solutions. This one shown here is one example of several proofs of concept that we're running. And once we have confidence from end-to-end in terms of how that thing works, we will then allocate in force. And that moment is going to arrive sooner rather than later. In fact, it's already -- we're already beginning to ramp that process up. So this is really a due diligence process that started around about June, July last year as we started to go out there and speak and have discussions with potential vendors for these types of products, how we can bring them on board as a strategic window and have them work with us in realizing the kind of strategies that we have in mind from a risk management perspective from a diversified yield generation perspective, and that is really coming to a logical conclusion soon. But just to give you an example, in October of 2021, middle of October, we allocated BTC 6 to [ Panzura ], one of their products called Risk Management as a Service, where basically there is a systematic algorithm, no human involvement, except tweaking some of the parameters around this algorithm that will essentially trade around the edges and manage that Bitcoin for us. As of February 2022, which is the start of this month, in fact, so this is about a week late now, that account was worth BTC 8.44. It's worth a little bit less now because it won't just go all-in when it decides to reenter Bitcoin after exiting during a risk down phase. So you will be averaging up as well, if you will, because it allocates. It does a, if you will, a quasi risk parity allocation based on these -- based on sophisticated time series analysis. But that's probably worth about BTC 7.4 at this point in time as it leans back into all-in Bitcoin, which is a market improvement over what we were able to allocate at the start of October or in the middle of October last year. And that's performance over a 4-month period. So over time, we want to scale that. We don't just want to do BTC 6. We want to do with a much larger pool. And we just don't want to -- we don't want to allocate these responsibilities to a single product or a single product provider for that moment. At this point in time, we have identified up to 5 partners we want to work with. And across those 5 partners, there's a number of products. So overall, there's about 7 products within our -- potentially within our approved product list run by these 5 providers. Probably going to be a growing list as we go forward as we find others who can execute on our behalf of these strategies. And then across these 7 or so products, there's about 20 or 30 roughly uncorrelated strategies that's in some parts performing risk management, in other parts of performing yield generation as well. So we're pretty excited about this. There's not a lot of guys in the market currently, at least within the publicly listed space that's doing this. I may be naive. But when I look around, what do I see? I see staking, I see mining, I see HODL-ing. I don't see a lot of active management, active in terms of how someone would work with ventured capitalists and bring opportunities to them and really helping them build their product and active in terms of treasury management. From a multiparameter perspective, not just for looking at risk, but also looking at return and also looking at the correlation across different strategies. And we have the in-house expertise to develop these recipes. We just don't want to run the kitchen, because we're conscious about operating risk, right? We don't want to maintain an in-house trading desk of quants and traders. We want to outsource that. But we know what the strategies are, and we want to find partners who can help us fine-tune those strategies, but more importantly, execute those strategies for us. So that's what we intend to do with our Bitcoin and Ethereum going forward. And that is it for me. So now it's really over to you guys in terms of any questions that you may have. So over to Veronika, if you can just line them up.

[Operator Instructions] Yes, we have one question here. Anonymous attendee is asking, is the Wasabi investment at risk given its recent involvement with the Bitfinex hack?

I have no clue. I've been told by Moe Adham, our Chief Investment Officer, who is on the Board of Wasabi, who is an advocate for a Wasabi, and who believes that it is a very well-run company, and I have full confidence in his informed view that Wasabi is an extremely well-run company. So I can't answer that question directly, because I don't have that information. But at this point in time, we don't have any significant material concerns in terms of the -- in terms of the integrity of our investment in Wasabi. And if that changes, you guys will find out at the next call.

Yes, we can certainly circle back on the next webinar. Okay, we have another question. Someone is asking, what appeal do wallets have from an investment standpoint? How is revenue typically generated from these wallets? And I think that's going to be revenue to us rather than for the actual wallets.

Yes. So Veronika, can you maybe read that question out again?

Yes. Someone is asking what appeal do wallets have from an investment standpoint, and how is revenue typically generated?

Yes. So with respect to opportunities like Samourai and Wasabi, it's really around the software aspect as a service, if you will, which is to say, how do you protect the anonymity and privacy of someone doing transactions over a blockchain, given that it is a publicly viewable and accessible network. And so technologies like CoinJoin is one way in which you can obfuscate identity. And that is the value proposition. And it remains to be a strong value proposition. There are other competing technologies as well like Wormhole, where you can essentially -- sorry, not Wormhole, like Tornado Cash, where you can essentially pull a whole bunch of coins together and mix up their identity, so that when they enter in one form on the one hand and then exit in another form on the other. Some people call that money laundering, but you can take it as you will. But that is really the service Wasabi, Samourai, Tornado Cash, in their individual variations offer to the market, that is the value proposition. And I think that is a respectable narrative. I say that because otherwise, how would they be able to pay those dividends? The other way to look at wallet is to look at the physical wallet, and that's really our investment in NGRAVE. And it really is a multifaceted approach, which is if you're someone who wants to truly go off grid -- and maybe that will become mainstream at some point in time -- what kind of systems and processes do you want to have in place to make sure that your assets are fully protected? If you consider gold, if you hold gold, you wouldn't put that under your debt. You probably wouldn't even put that in a safe in your house. You would want to vault it somehow. I guess that's the kind of -- it's not a perfect analogy, but that's the way you want to look at it when you look at opportunities like Wasabi, Samourai and NGRAVE. It's really the part of the same ecosystem. It's a symbiotic software/hardware collaboration. And in the case of NGRAVE, I encourage you guys to go on to their website. They actually have a 3-tier product where they have one of the coldest hardware wallets in the market out there. I'm in Neanderthal when it comes to this. All I know is that hot wallets, highly accessible, easy to use, not very safe; warm wallets, somewhere in between, goldilocks, if you will; cold wallets, pain in the a** to use, with very high military grade security. That's the way it's been explained to me. I get that at that level at least. And what NGRAVE has done is they really tried to innovate around the cold. And there was the coldest storage part of the market. So it really is aimed towards a pretty niche audience, but it is a growing niche audience, and it's a deep pocket audience, if you will. They did their feed raise at EUR 19 million pre-money, as you guys saw in the release. They managed to raise EUR 6 million. So they're going to use that capital to try and scale up their production. They were already in the proof of concept, delivering to 81 different countries, very small quantities, but really, they've got to scale up and commercialize that now. And that's what I've said to Ruben, when we spoke to him last time in terms of really getting on the front foot Trezor and Ledger X. They're looking at you guys. The reason they're not doing anything at the moment is because you're probably too small and you're probably not in the right segment that they're targeting. But the moment you become a threat, they're going to come at you, they're going to come at you hard. They have orders of magnitude more cash than you, you better be ready. So that's what I said to Ruben, and we'll see how that goes. It's a risk play, but it's a good team. It just depends on how that transpires over the next 12 months. So we're in constant contact, and we'll be getting updates from the senior management at NGRAVE, which we'll pass on to you guys as well when time comes.

Excellent. Thank you, Jeff. Another question. There are many crypto-related investments here, but this person that's asking is, but I'm not clear on what the goal is going forward. What is the capital allocation plan?

Going forward, now, I have a prerogative for the entire company, which is by 30th of September this year, which is our financial end of year, we will be structurally profitable. We have rough numbers, Bitcoins correct it a little bit. We have roughly CAD 30 million to CAD 35 million assets under management at this point in time. We have a very lightweight or highly impactful team, very disciplined in terms of our process, highly knowledgeable. There are far smaller companies with far few capital that have done far more than us. So there's a lot of capacity, a lot of overhead for us to really hit it out of the park. So by financial year-end, this year, we will be structurally profitable. And I want to do it through 2 lines of effort. The first line of effort is leveraging our significant treasury holdings to start generating yield in a risk-managed fashion. And it's really looking at risk adjusted rates of return across these various structured products and allocating that accordingly as any professional money manager would do. But we need to have intricate and in-depth understanding of the strategies and the integrity of the execution behind them. So that's something that we do really well in house, and we want to use that and leverage our significant treasury to start generating yield and be in a position where we have the ability to pay dividends. We would have the ability to continue paying dividends. Not to say that we will, because if there are accretive opportunities, if there are capital accretive opportunities that we can leverage to generate the incremental value for shareholders in a manner that is better, orders of magnitude better than what shareholders can otherwise do with those dividends, then we won't pay it out. But we need to be in a position where we can. Which means that we would also be in a position to raise capital at the time and of the conditions of our choosing. Again, when market runs up, we can be opportunistic, and we can raise that premium over NAV. And all of that capital comes in, none of it's going to go towards G&A. All of it's going to be accretive, and it will be allocated accordingly to these strategies, which by then we would have been -- we would have built to a point where they are scalable, reproducible and replicable. That is our first and primary line of effort. Our other line of effort is continue doing what we do, working intensely and collaboratively with like-minded founders in good projects on the venture capital front and really replicating the kind of success that we've had with GOAT. GOAT is going to be the first of many. So those are the 2 core focuses within my vision, and I'm keen to execute that this year.

Another question, have you considered seeding or participating in seeding a company operating in the NFT market -- sorry, NFT art market, to be specific?

Yes. No, that's a good question. Well, let's maybe not talk about in what form that's going to take place. So let's just talk about the NFT market. So the way I've described it, NFT assets provide exclusivity. And I'm extraordinarily bullish on NFTs in general. But just like with anything, there's different shades too, and you've got to identify pockets of opportunity that are highly asymmetric on the upside. So with NFTs broadly, I would categorize NFTs that provide aesthetic exclusivity versus functional exclusivity. Now what does aesthetic exclusivity means? It means if it's a picture of a monkey, if it's a picture of a rock, if it's a picture of an egg, yes, you earned that picture. Perhaps eventually, you will have the ability to collect royalty off of that JPEG image if other people start using it on other parts of the network. At this point in time, it goes on the contract loan, good luck with that. But at some point in time, maybe the system will be built, maybe smart contracts will be built so that revenue and income streams can be garnished for anyone that decides to use proprietary digital property. In that manner, that's owned by you, and you can't just take a screenshot of it anymore. That provides aesthetic exclusivity because ultimately, someone else can make a copy of that to the point where besides that concrete ownership defined by the smart contract, you would otherwise be able to enjoy the benefit of that. It's a lot like positive externality, where if my neighbor has a beautiful garden and I just have a flat block of land, I can look over at their garden, which is right next door to me and enjoy as much as they do. They're putting all the work into that, I've done nothing on my lot. What they've done is going to increase the value of the street, mine one won't. So there's positive externality flowing from these aesthetically exclusive NFTs as well, where, yes, they own it because the smart contract said so, but you can take a picture of it as well, right? That's one example. It's tapering over some of the finer aspects, but gives you the general idea. Now what is this functional exclusivity? A gaming NFT is an example of something that provides functional exclusivity. Because unless you absolutely own the NFF, there is no way you can benefit from it. Because you can't use it in the game. It literally belongs to somebody else, and you really have to have the NFT in order to participate, right? So you can look at, if you use Axie Infinity, right? If it's a horseracing game, right? It's an NFT with a digital horse in it and you go on the race track, you can look at someone else's horse, but you can never use it to participate in a race. So that type of NFT provides functional exclusivity. And there are other opportunities as well within, for example, the credit risk assessment space, where if you look at bonds and debentures, going forward, if you wrap a bond and a debenture in an NFT, you can essentially do income garnishing, where you can almost fully mitigate the risk of default down to 0, right? If all of this -- with people's incomes and their bond debentures exist on a particular blockchain, that ensures that if you fail to repay the coupon or if you fail to repay principal, there is enough collateralization within other parts of the system effectively to automatically recoup the principal. So there are -- again, I'm just providing color commentary around the different shades of exclusivity that a smart contract would otherwise provide. So what are my views on artwork NFT? That's a space that we're aware of, but we haven't decided to pull the trigger on that year. But we're monitoring like any opportunity within the space. Because when it runs, it will run and it won't give you any advance notice.

We'll move on to the next one. We have a little note to say well done on the Animoca investment. I think we're all very happy with that. And the question is, does it make sense to have these small investments such as the 3 wallets? Because even if you double the value of those investments, it will not move the needle in terms of return. Will those small investments remain part of the long-term strategy?

That's a great question. That is something that we will continue to debate at the investment committee level on a weekly basis. That question was raised last week in our meeting. It will be raised in the next meeting, and we will continue to investigate that. Rationalization as a general comment, definitely makes sense. I've just indicated that there are 2 key lines of efforts, and I haven't really mentioned wallets in those. But privacy remains a latent, albeit fundamental theme. And really, it's a collective decision. So I will take -- given that I don't know much about wallet fundamentally, based on where I come from, I will need to take advice collectively from the investment committee in terms of what we do with those specific line items. But barring that, it is really a process about divesting, consolidation and focusing on what we're good at to be in a position where we are structurally profitable and we can start accumulating accretive capital and scaling that up to deliver value for shareholders.

Excellent. And had a question from [ Roberto ]. Who are your competitors and how are they doing?

Who are our competitors? Well, if capital is a competitor, DeFi is a competitor. I'm not sure if the miners like Hut 8 and Riot are competitors. But I think just within the crypto space in general, like what I touched on earlier, we're focused on things like mining, on staking, on coin selection. Not a lot of guys are doing what we're doing. So the first question is, is there an apples-to-apples comparison? And the second question, I guess, is what is our core, what is it that we're good at? So our competitors are vested thematically in certain things. And in a way, you can really get fundamental and dogmatic and idealistic with respect to those thematics. We don't want to do that. We just want to go where the opportunities are. So it might be the case that HODL will change -- what is the definition of HODL, right? What is exactly are we HODL-ing? Are we HODL-ing at a particular process, or are we HODL-ing a physical thing? HODL going forward will be extremely agile in terms of how we discover and how we nurture value. So we don't want to be thematically encumbered. We want to go where the opportunities are. And that is going to be a distinction. But we also want to ensure that there is strategic clarity, not -- there'll be operational ambiguity, because we need to roll the punches and go where the opportunities are, but there also needs to be strategic clarity. And that strategic clarity comes from the mandate that we need to be structurally profitable. We need to find yield where yield exists. We need to ensure that the yield is diversified, so we mitigate unsystematic risk, and we also need to manage the risk of the underlying which we are using in part as collateral to generate that yield. That is, I think, a good overall prerogative. And in terms of how we operationalize that, that is really -- that is within our flexible purview.

Okay. Great. Another question about IP addresses. You invested in IP addresses last year. What kind of return does that bring to HODL?

Good question. So in terms of yield, it's about 15%, it's up and down. So the IP market has cooled in -- over the course of December and January. I know that because currently on our platform, IPXO, I am pricing these subnets on average 7% to 10% below market. And I'm not getting a lot of bids. About 12%, 13% of it has been leased over the course of December last year and January this year. Prior to that, it was all fully leased. But that's softened a little bit. So overall, I'm going to say, on the high end, 20%, 25%; on the low end, 10% to 15% annualized yield. How have they done from a capital appreciation perspective? /18 was purchased in Q1 2021. If I look at the prices today, that's gone up 120%, that /18 subnet in terms of what we pay for -- what we can get for it today if we were to sell it. In terms of the /19 subnet, which we purchased, I believe, in September of 2021, that we've had for 6 months, that's gone up -- off the top of my head -- I think, 33%, 34%. So robust price appreciation. But I don't think IP address is going to be core. So we will be looking at divestment opportunities. And just -- it's a good yield, but why would you want this having this hanging on the site and sinking corporate energy into it when you can focus on something that's more scalable and replicable. So it's had a good run, but we'll be looking at opportunities to divest and divert that capital towards what we do best.

Excellent. HODL used to be all about privacy. Is that still the strategy to invest in technologies linked to privacy?

Only if privacy decides to show its hand. If it doesn't run, if it remains stale, we'll monitor it, but we're not going to give it any shine. It is a consideration, but it is no longer the sole focus. And the longer it remains stale, the long it remains latent, the more diminish the amount of attention we give to it. But we still need to monitor it, because if it runs, it can really run. Fundamentally, it makes a lot of sense, but we don't pay bills based on fundamentals. We pay bills based on performance.

Excellent. I think that [indiscernible] otherwise we can -- one more. How are you navigating marketplace manipulation?

We're not. That's why we have counterparties to execute for us. All of the -- so with respect to -- when you say marketplace manipulation, I guess the risk is more to do with treasury management, right? It's not so much with private equity. And with that, this is why we've partnered with reliable vendors who we are proud enough to call strategic partners to manage the execution on order risk for us. And they have access -- we've done the due diligence on them, they've got the liquidity providers, helping them execute on their behalf as well. So that is -- that's how we're managing it. We're outsourcing it.

Okay. Great. We have a financial question. Your audited financial statements mention that you contracted a line of credit at a rate of 10.5% per annum collateralized by Bitcoin. Why would you borrow money at that rate?

Yes. I'll answer the first part, and then Doug, if you've got any commentary, I'll hand over to you as well. We would borrow at a certain rate if we believe that on a risk-adjusted basis, we can apply that capital to generate a risk-adjusted yield that justifies that rate. That's basically it. And we paid out part of the loan. The reason we paid that part of the loan is because we've reassessed that risk/reward, those risk/reward dynamics with respect to that loan -- to that slice of financing. Doug, do you have anything to add to that?

Well, it's difficult to find a loan that will use Bitcoin as collateral. But we did shop around and got the best rate that we could using our treasury Bitcoin as collateral. We used the proceeds from the loan to invest in Animoca. So we far exceeded our cost of capital. So we're quite happy with it. But to Jeff's point, and to your point as well, the person asking the question, it's expensive capital, and we'll probably be paying it down.

If we can't find an opportunity that provides a risk-adjusted return commensurate with the interest cost on that loan, then we'll close it down. We have the ability to do so.

Excellent. I think we have got through all of the questions, unless there is anyone else that would like to ask anything. Oh, yes, one more. Are you planning to dilute the existing shareholders in 2022 to increase your investment capacity? And if yes, would you be -- what would be your minimum price?

I'm not even thinking about a capital raise until I see north of CAD 0.50, because we can. Because if we're structurally profitable, and we believe that we can do a lot more with the capital that we already have, that we're privileged enough to have, that other companies don't even have, we would die for that privilege. There's a lot we can do with that. And the market will run. There will be a point in time where the tide rises and a lot of companies, including HODL, will be premium over nerve. And we will be in a position to raise into strength so that it is not dilutive. I wouldn't want to do anything that is dilutive. Because anything that impacts shareholders impacts us. We are shareholders. In fact, we own a lot more shares than a lot of you guys do, I dare say. So that's basically north of CAD 0.50. Otherwise, we're more than happy with what we have, and we know that we can do a lot with it.

Excellent. Let's give it 1 more minute, in case anyone else has more thought. But again, that was the last question from the list. I think if there are no more questions, we can -- excellent, someone just said thank you for today. So that's not a question, but thank you. I'm glad that we have answered all of the questions. If anyone does have any follow-up questions, again, as always, please feel free to reach out. We are always available to speak. We will be holding another webinar shortly. So well, shortly in a month's time, and we can also revisit some of the things that you have asked. And yes, thank you very much for everyone. I do have one more question, if you don't mind, Jeff.

Yes. Go ahead.

Will you invest in any metaverse directly? And if so, are there any that you're looking at?

There are themes and subsectors that we are looking at. When we make those investments, we intend to do that through partners, because it's all about specialization. We want to focus on what we do best, which is identifying opportunities and subsequent to that identified partners who are specialized at executing for us.

Excellent. Excellent. I think we are done. Well, thank you very much, everyone. We will be posting this video on the website, so everyone will be able to see it. We will be uploading the deck as well. So if you do have any questions, feel free to reach out. You can come straight to me at [email protected] or even through our info address. Obviously, we would love to keep in touch and see you very soon in 1 month's time.

Great. Thanks, Veronika. Thanks, everyone.

Thank you, everyone.