Forward Industries: Buy Solana At A Discount

Summary Forward Industries, the largest listed SOL holder, has been pegged back amid bearish crypto sentiment. I take a closer look at the mNAV drivers and structural advantages of this Solana treasury company. All signs point to FWDI being oversold here, leaving investors with a wide margin of safety. Since Michael Saylor’s Strategy ( MSTR ) successfully deployed the digital asset treasury company (DATCo) playbook with bitcoin ( BTC-USD ), we’ve seen similar DATCos sprout up for the other crypto majors. For the Solana blockchain and its native cryptocurrency SOL ( SOL-USD ), the equivalent is Forward Industries ( FWDI ), a DATCo formed via a $1.65bn private investment in public equity ( PIPE ), led by Galaxy Digital ( GLXY ), Jump Crypto, and Multicoin Capital last September. Today, FWDI is no longer a sleepy “global design company”. Instead, it is the world’s largest listed SOL holder with a ~7m SOL corporate treasury (or ~$600m at time of writing) – by comparison, the second and third-largest listed holders, Solana Company ( HSDT ) and DeFi Development Corp ( DFDV ) hold ~2.3m and ~2.2m SOL, respectively. Coingecko Like the other DATCos, the goal here is to grow its SOL per share over and above a passive staked SOL benchmark (note that SOL can be staked for a % yield). In SOL terms, so far so good; per its latest earnings report, FWDI is indeed pacing above its benchmark. In dollar terms, however, not so good, as the recent months’ crypto drawdown has left FWDI sitting on a near $1bn paper loss. Coingecko FWDI stock has been punished in tandem and now trades at a record 20-30% discount to mNAV (i.e., Market-to-Net-Asset-Value or the company’s market capitalization relative to its underlying SOL treasury holdings). For context on how “cheap” this is, recall that mNAV peaked at just over 2x last year. with key peer DFDV trading up to an even higher ~6x. Forward Industries In sum, sentiment seems overly bearish today. This despite Solana’s value proposition of cheap and fast transactions remaining firmly intact. Thus, it’s as good a time as any, in my view, to reassess the FWDI investment case. The Built-in Yield Engine 1. Native Staking One of the key things to note here is that FWDI’s asset of choice, SOL, is a yield-bearing asset. Per FWDI management on its last earnings call, these holdings are fully deployed (“more than 99% staked”) and yielding “between approximately 6.5% and 7.2%” last quarter. Today’s native SOL yields are lower at ~6% but the significance remains. FWDI can natively grow its Solana balance a lot faster than an equivalent ETH (yielding 2.5-3%) or BTC DATCo (no yield) - without additional capital raising or dilution. This “yield engine” means investors can underwrite future SOL accumulation with a lot more certainty. This should, by extension, be reflected in a wider mNAV premium – not the mNAV discount currently priced into FWDI stock. 2. The Yield Edge While staking cryptocurrencies come with some form of yield, it’s important to note that this yield isn’t uniformly distributed. Moreso for a high-performance blockchain like Solana, where running validators is especially complex. FWDI stands out here, given its close ties to two major players. Firstly, Galaxy, among the earliest and largest Solana validators in the space, and secondly, Jump, the team behind Solana’s cutting-edge new validator client, Firedancer (or Frankendancer for the transitional version). Blockworks Leveraging these ties, FWDI has built out one of the highest-performing validator sets in the Solana ecosystem. Not only in terms of throughput but also in terms of its realized % SOL yield, which, per Solana Compass , is tracking at the very top end of the validator range. Solana Compass Note also that management has quoted much higher “real” yields from block rewards and priority fees in the past. This tends to be variable; in the current bear market, for instance, FWDI validators only added ~0.2% to their base yield (~6.3% total). When chain activity picks up in bull markets, on the other hand, this can run a lot higher. Orb Markets Again, all of this should justify a premium (vs the current mNAV discount) to the SOL on FWDI’s balance sheet. 3. The Fee Edge Lastly, it’s also important to note that staking SOL comes with costs – so much so that running a validator isn’t really feasible for an individual. Traditionally, you’d delegate your SOL to a third-party validator and pay a commission; this would give you a net yield lower than the native staking yield. Helius The emergence of DATCos like FWDI gives individuals an alternative – own equity and derive SOL staking benefits without third-party staking fees. Now, if you also factor in the fact that FWDI’s validator set consistently outearns peers, going with equity should give individuals a higher-than-average net yield. This should translate into an mNAV premium - even after factoring in the transaction costs associated with buying FWDI stock. The Capital Allocation Optionality 1. Multicoin 2.0? Besides its advantages on the yield generation side, FWDI stands out as being the most deeply embedded of the DATCos within the Solana ecosystem. That lends a lot of credence to its goal of becoming a “broader Solana-native operating company”. The question, though, is whether FWDI going from pure-play treasury to Multicoin-style venture capitalist represents positive or negative optionality? On the positive side, we do know that Chairman Kyle Samani has the track record from his Multicoin days. For context, Multicoin’s early bet on Solana led to its flagship fund “outpacing just about every venture fund over the same time period” with a net 93.8x return on capital at the peak of the crypto bull market. readthegeneralist On the other hand, a Samani-led Multicoin did take very concentrated bets and didn’t always get things right. Following the FTX exchange collapse, for instance, the fund disclosed a ~91% drawdown for the year, some of which ended up being permanent due to direct FTX exposure. More recent data also points to newer vintages suffering heavy losses under Kyle’s leadership; this underperformance has coincided with his departure and a notable absence of SOL mentions in Multicoin’s updated thesis . Ran Neuner 2. ‘Free’ Options So, will FWDI, if it follows through on its active investing promise, go the way of Multicoin’s earlier or later vintages? My guess is that at this point, the latter is more likely. But FWDI shares are also excessively priced for it at their current mNAV discount. Which means that, as an investor deploying new money into the stock, you get a very wide margin of safety against capital misallocation risks. Plus, a ‘free’ bet on a scenario where FWDI’s Solana ecosystem investments prove accretive. Another potentially ‘free’ source of optionality lies in consolidation. History suggests that when things fall out of favor, companies that pivoted toward the ‘hot’ new trend tend to pivot out of it just as quickly. So, with smaller Solana DATCos also trading well below their mNAVs, opportunities could arise for a better-capitalized, more ‘serious’ DATCo like FWDI to pick things up on the cheap. Again, a case for the mNAV to normalize higher. Blockworks Wrapping Up DATCos tend to swing around a lot depending on the prevailing sentiment. This means unsustainable mNAV premiums in bull markets; but conversely, also unsustainable mNAV discounts in a bear market. The latter applies today, with FWDI stock priced at a discount to the SOL on its balance sheet and with income generation and capital allocation optionality thrown in for ‘free’. All in all, a very favorable risk/reward here.