Is the Ethereum bought with BMNR and SBET equivalent to being destroyed?

Author: Very Big Orange; Source: X, @0xVeryBigOrange

Recently, I've had this crazy idea that even I think is a bit far-fetched, which is that the Ethereum bought with BMNR and SBET is equivalent to being destroyed?

First, soul-searching: mNAV negative premium vs. does the company need to sell coins?

The so-called "crypto proxy stocks" like SBET, BMNR typically have the following core model:

● The company issues additional shares through ATM when the market premium is high for financing;

● Use the proceeds from financing to purchase underlying assets such as ETH or BTC;

● Keep these coins as assets on the company's books to correspond to market value and NAV.

The key point is:

● They did not issue debt to buy ETH (unlike leveraged Bitcoin mining companies that borrow to buy mining machines/buy coins);

● Therefore, when NAV appears to be at a negative premium, they do not need to sell ETH to "correct" it.

● NAV premium/discount is merely a change in the relationship between the market stock price and the ETH held by the company, and the company itself will not sell coins as a result.

In the soul-searching question, when will the company buy ETH?

The timing when these coin stock companies will actually buy ETH is usually:

● The stock price is trading at a high premium in the secondary market;

● The company chooses to issue additional shares through ATM (at-the-market);

● The funds raised will be used to purchase more ETH directly.

In this way, their ETH reserves will continue to increase.

Will they sell ETH?

Theoretically:

● They are unlikely to sell ETH at a "discount" (because they have no obligation to do so);

● Their positions are all on-chain public addresses. Once the underlying assets are sold, it will cause market panic, and both ETH and the coins themselves will quickly enter a death spiral.

● Unless the company itself has operating costs (such as salaries, audit fees, listing costs, etc.), it needs to periodically sell a small portion of ETH for cash flow.

● But it will not have a mandatory redemption mechanism like an ETF.

Overall, the probability of buying is much greater than selling.

Is my understanding correct?

● These coin stock companies buy ETH, essentially transforming secondary market funds into on-chain true coin buy orders;

● From the perspective of the Ethereum ecosystem, it is indeed somewhat similar to a "semi-permanent lock-up", as they buy it and generally do not sell (except for a small amount for expenses);

● So it is equivalent to a slow reduction of ETH circulation (similar to a burning effect).

However, there is still a difference from "real destruction":

● True destruction means ETH completely disappears from circulation;

● The ETH purchased by the stock company still exists on the chain, but is locked in the company's vault and may still be sold in the future.

The currency stock companies are more like a "reservoir" for ETH, only buying ETH when the premium is high and almost never selling ETH due to discounts.

Therefore, their existence does indeed increase the "absorption capacity" of ETH in a certain sense, resulting in a similar effect of "reduced circulation/destroyed".