DeFi development project targets more SOL and successfully raises $11 million

DeFi Development Corp. completes US$11 million CHAD preferred share issuance, opening up a new financing channel for Solana's treasury strategy

Summary:

• DeFi Development completed a $11 million CHAD offering, with net income of approximately $10.3 million.
• The CHAD issue price is US$8 per share, the declared amount is US$10, and the initial dividend yield is 13%.
• The company plans to use the vast majority of its net income to purchase additional SOL to replenish its treasury.
• CHAD is a perpetual, non-convertible preferred stock that is superior to common stock in terms of settlement but lower than debt obligations.
• According to the filing documents, the first dividend payment is scheduled to take place on October 1, and the registration deadline is September 30.

Transaction details and use of funds

The Nasdaq-listed company issued 1.375 million variable-rate Series C perpetual preferred shares at US$8 per share. The security is traded on the Nasdaq Capital Market under the symbol "CHAD" and has a stated amount of $10. After deducting underwriting discounts, commissions and expected fees, DeFi Development earned net income of approximately $10.3 million, according to the latest SEC filing. The company said the funds will be used for general corporate purposes, including working capital, SOL purchases and strategic initiatives.

The scale of the completed issuance is smaller than the preliminary terms previously announced. DeFi Development had previously proposed selling 2.2 million shares for $9 per share, which was expected to generate total earnings of $19.8 million. However, the final transaction involved 1.375 million shares and was priced at $8 per share. The underwriters were given a 30-day option to purchase an additional 206,250 shares at the final public offering price. R.F. Lafferty & Co. serves as the sole bookkeeper.

DeFi Development's final announcement stated that Fundstrat co-founder Tom Lee participated in the subscription with other investors. Lee also serves as chairman of BitMine Immersion Technologies, a treasury company for Ethereum.

CHAD Product Features: The first "digital credit" tool supported by SOL

The company claims that CHAD is the first "digital credit" tool supported only by SOL. It should be noted that this is DeFi Development's descriptive definition of the product, not a separate regulatory classification. From a legal perspective, CHAD is a publicly traded preferred stock interest issued by a U.S. company.

Dividend Yield Mechanism and Adjustment

CHAD's initial annual dividend yield is 13%, based on its stated amount of US$10. As investors buy at $8 per share, the initial effective rate of return is approximately 16.25%. However, this rate of return is not a guaranteed return. Dividends can only be paid when announced by the board of directors and when legally available funds are available, that is, the principle of "when, if and if announced" is followed. The board may review dividend yields monthly or more frequently.

The company may not reduce the dividend yield by more than 50 basis points in a single adjustment. Management said it intends to use variable dividend yields to support CHAD's market price in the range of $9.95 to $11 in the long term. However, this is still a forward-looking statement, and the dividend adjustment does not ensure that CHAD reaches or remains near the stated amount of $10.

To ensure ability to pay, DeFi Development has established a reserve covering a 12-month dividend at an initial dividend yield of 13%. The company uses existing cash, financial instruments or digital assets and deposits US$1.30 for each share issued into a separate account. The first payment is scheduled for October 1 and covers the period from issue to September 30. Shareholders on the books as of the close on September 30 are eligible for the payment. Subsequent dividend plans are distributed every business day after approval by the board of directors.

Settlement order and redemption terms

CHAD is a perpetual security with no predetermined maturity date and is not convertible into common shares, which means that holders cannot convert their preferred shares into DFDV common shares. Preferred shareholders rank ahead of ordinary shareholders in terms of dividend payments and asset distribution during liquidation. However, CHAD's liquidation order is behind DeFi Development's existing and future debts and is structurally inferior to the liabilities held by subsidiaries.

After CHAD's listing on Nasdaq, the company has the right to redeem CHAD at a price of US$11 per share plus accumulated but unpaid dividends. In addition, the company may also redeem all remaining shares in the event of a specific tax event or the number of outstanding CHAD shares falls below 25% of the total number of all current and future issued shares.

Since CHAD is not converted into common shares, this offering does not increase the number of common shares in DFDV. Management therefore expects that SOL holdings per share will increase after the funds are invested. However, this result has not yet been established and will depend on changes in the amount of SOL purchased, transaction costs, the market price of SOL, and the number of shares in the company after full dilution.

Solana Treasury Strategy and Pledged Income

DeFi Development said it expects to invest the vast majority of its net income in purchasing additional SOL. However, its SEC filings also allow funds to be used for working capital and strategic initiatives, meaning the full $10.3 million is not legally limited to the purchase of Solana.

Before the closure of this offering, the company held approximately 2.33 million SOL and SOL equivalent assets. According to previous reports, it purchased approximately 19,000 SOLs in August at an average price of US$98.14, when its total treasury reached 2.33 million SOLs. The reported treasury totals include SOL equivalents, but DeFi Development has not provided a detailed composition that distinguishes native SOL, liquidity pledged tokens, and other SOL-denominated positions.

Unlike Bitcoin, SOL can generate pledge rewards. DeFi Development operates the verifier infrastructure and pledges tokens through external verifiers. Management believes this gain will help support its preferred stock dividends and broader earnings. However, pledge returns are volatile and cannot be regarded as guaranteed income. It depends on network inflation, validator performance, entrusted pledge volume, fees, and the dollar value of SOL.

Market Reaction and Follow-up Plan

On September 8, DFDV common stock closed at $5.99, up about 2%. On September 9, SOL traded close to $104. There is currently no conclusive evidence that directly indicates that these two changes are related to the end of the CHAD issue.

The next big event is CHAD's record date of September 30, followed by the first dividend payment on October 1. DeFi Development also plans to disclose updated SOL position data and its SOL holdings per share after deploying funds.