The TON Strategy: A Contrarian Case for Investing in Crypto-Backed Firms Amid Market Distrust

The crypto market has long been a theater of extremes-volatility, hype, and skepticism. Yet, amid the noise, a quiet revolution is unfolding in the realm of crypto-backed firms. These companies, often dismissed as "distressed" due to their net asset value (NAV) discounts, are leveraging debt-funded share buybacks to create alpha for investors who dare to look beyond the headlines. This is the TON Strategy: a contrarian approach that identifies undervalued crypto treasury plays by exploiting the interplay of Treasury, On-chain, and Network dynamics. Let's dissect the evidence.

The NAV Discount: A Mispricing Opportunity

When a firm trades at a discount to its NAV, it signals a disconnect between market sentiment and intrinsic value. For crypto-backed firms, this gap is often exacerbated by macroeconomic headwinds, regulatory uncertainty, or sector-specific jitters. However, disciplined buybacks funded by debt can act as a catalyst to narrow this discount-assuming the firm's underlying assets remain robust.

Take Runway Growth Finance (RWAY), a business development company (BDC) with a 31% NAV discount as of Q3 2025. Despite a shrinking investment portfolio (down 12% year-to-date to $946 million), RWAY has maintained a 130% dividend coverage ratio and executed a $250 million buyback plan. Its recent merger with SWK Holdings is a strategic move to scale its healthcare and life sciences exposure, potentially unlocking earnings power in a sector less correlated with crypto's volatility.

Similarly, VNV Global trades at a 44% NAV discount, yet its $587 million NAV and $652 million investment portfolio suggest a strong balance sheet. The firm's share repurchases-1 million shares in Q3 2025-signal management's confidence in its valuation, even as broader BDCs face declining originations and portfolio contractions.

Debt-Funded Buybacks: A Double-Edged Sword

The use of debt to fund buybacks is a contentious strategy. Critics argue it risks a "death spiral," where forced asset sales to service debt further erode NAV. Yet, when executed with discipline, it can stabilize share prices and reward shareholders.

ETHZilla exemplifies this duality. In Q3 2025, the firm sold $40 million in ETH to repurchase 600,000 shares under a $250 million buyback plan, reducing its market-to-NAV ratio to 0.62. While this move drew scrutiny for liquidating long-term holdings, ETHZilla's staking yields (7.5% in Q3) and plans to deploy tokenized real-world assets (RWAs) suggest a focus on recurring on-chain cash flow. The firm's $931 million in institutional capital raises also indicate strong investor appetite for its vision.

Empery Digital, another digital asset treasury (DAT) firm, has similarly turned to debt to fund buybacks. With $476 million in Bitcoin holdings, its strategy hinges on leveraging crypto's inherent volatility to amplify returns. However, as Adam Morgan McCarthy of Kaiko warns, such actions signal "death rattle" for firms unable to align stock prices with underlying asset values. The key differentiator here is innovation: DATs that pivot from passive holdings to yield-generating RWAs or infrastructure support are more likely to sustain value.

The TON Framework: Why This Works

The TON Strategy thrives on three pillars:

1. Treasury: Firms with diversified, high-quality crypto holdings can generate recurring income to fund buybacks without sacrificing long-term value.
2. On-chain: Blockchain's transparency allows investors to track asset performance in real time, reducing information asymmetry and building trust.
3. Network: Strategic partnerships and sector diversification create flywheels that amplify returns.

For instance, ETHZilla's Layer 2 yield expectations (3.5–4.5%) and RWAY's healthcare portfolio expansion illustrate how these firms are building moats against crypto's inherent volatility.

Risks and Realism

No strategy is without risks. The BDC sector's average leverage ratio of 0.93x and DATs' reliance on debt-funded buybacks expose these firms to liquidity crunches if crypto prices tank. Additionally, payment-in-kind income (11% of RWAY's NII) can distort earnings visibility.

However, the current discount levels themselves represent a margin of safety. At a 31% discount, RWAY offers a 14.2% dividend yield, while ETHZilla's $27.79 NAV per share suggests significant upside if its RWA initiatives gain traction.

Conclusion: Buy the Dip, Not the Noise

The TON Strategy isn't for the faint of heart. It requires conviction in a sector still grappling with regulatory and market headwinds. Yet, for investors who can separate signal from noise, the opportunities are clear:

• RWAY combines BDC stability with strategic M&A.
• ETHZilla and Empery Digital are testing the boundaries of crypto treasury innovation.
• VNV Global offers a hybrid model, blending traditional assets with crypto exposure.

As the market continues to discount these firms' true value, the TON Strategy provides a roadmap to capitalize on mispricing-leveraging debt, on-chain transparency, and network effects to generate alpha in a world that's still learning to price crypto's potential.