Author: Gu Yu, ChainCatcher

Months later, the Layer1 public blockchain sector recently saw a financing round with a valuation of 1 billion USD. The high-performance parallel Layer 1 blockchain Pharos announced a new round of capital cooperation upgrade with Hong Kong Stock Exchange-listed company GCL-Poly Energy Holdings. GCL-Poly Energy completed an investment subscription for Pharos with a valuation of 950 million USD for an amount of 24.73 million USD.

GCL-Poly Energy is a well-known domestic private photovoltaic power generation enterprise engaged in the development, construction, operation, and management of solar power stations, which aligns well with Pharos's focus on RWA. It appears that this is a transaction with positive strategic significance for both parties.

However, this transaction has also raised many questions in the market. At present, with the secondary market being bleak, can Layer1 and RWA sector projects really still achieve a valuation of 1 billion USD in the primary market? Will listed companies easily invest in such high-risk assets?

Mutually Binding Bet Transactions

Many details hidden in the complex announcement indicate that this is not a conventional direct financing transaction, but a bundled transaction involving mutual investment, phased delivery, and market value betting, with all core delivery conditions firmly in the hands of GCL-Poly Energy. Should any condition fail to be met, this transaction will be nothing more than a non-binding piece of paper.

Among them, Pharos's share subscription for GCL-Poly Energy is a pre-investment, which allows the company to subscribe for up to 183,480,000 new shares at a price of 1.05 HKD per share, valued at approximately 150 million HKD. This price represents a 15% discount compared to GCL-Poly Energy's current price (1.23 HKD).

This transaction seems to favor Pharos, but GCL-Poly Energy obviously understands the nuances of financial operations and has set five stringent delivery thresholds for this share subscription transaction. If any batch of delivery conditions is not met, all subsequent deliveries will be terminated, and the entire agreement is valid for only 18 months. Specifically, this investment is divided into five batches of delivery, with unlock conditions all linked to the listing performance of Pharos Token:

The first batch of delivery represents 50%, which will only occur if Pharos Token successfully obtains approval for listing on the relevant Web3 exchanges and the listing opening price is not less than the agreed investment price of the company (based on a valuation of 950 million USD). If the listing fails or the opening price falls below the offering price, the company has the right to not proceed with the delivery.

The second batch of delivery represents 12.5%, which will only occur if the average FDV (fully diluted market value) of Pharos Token is not less than 760 million USD per day for the three months prior to its listing.

The unlocking conditions for the next three batches are roughly similar, with the main differences being the periods for calculating the average FDV being the fourth to sixth month, the seventh to ninth month, and the ninth to twelfth month respectively.

Once the Pharos Token meets the delivery conditions, Pharos's shares subscription for GCL-Poly Energy will correspondingly take effect, and GCL-Poly Energy's subscription for Pharos Token will take effect simultaneously with the same unlock ratio.

That is to say, once Pharos Token is successfully listed, Pharos will immediately deliver a subscription of 75 million HKD worth of shares to GCL-Poly Energy, while GCL-Poly Energy will acquire approximately 96.73 million HKD worth of Pharos Token at a valuation of 950 million USD.

For GCL-Poly Energy, this is a transaction that is virtually risk-free, as it can obtain 75 million HKD of share subscription funds while gaining nearly 100 million HKD worth of tokens at the initial opening valuation if the Pharos Token performs well, with considerable profit margins.

The positive news has already reflected in the stock price. Although GCL-Poly Energy first announced the cooperation with Pharos on January 8, its stock price had already been significantly rising a week prior, moving from 0.8 HKD to 1.3 HKD on the announcement date, reaching a peak of 1.8 HKD thereafter before maintaining a downward trend. In the trading market, this is a typical “mouse warehouse” trend.

Another potential issue is that Pharos's previously disclosed cumulative financing was only 8 million USD, equivalent to 62.61 million HKD, so even if the pre-investment conditions are met, this funding gap may also pose a challenge for Pharos.

Source: RootData

How was the 950 Million USD Valuation Established?

Another interesting piece of information is that GCL-Poly Energy also detailed in the agreement why it valued Pharos at 950 million USD. According to the agreement, the valuation of this investment is primarily based on the total locked-up market value on-chain, calculated in the Layer1 sector, where the average ratio of fully diluted market capitalization to total locked asset value for Ethereum, BSC, Hyperliquid, Tron, and Avalanche is 10 times, while the median is 6 times, and the ratio for similar technical route Monad is 10 times.

As a result, the parties decided to set the computation coefficient for Pharos at 4.75 times, while Pharos's current total locked asset value is 250 million USD, calculated with a 20% discount, therefore the initial valuation should be 950 million USD.

In terms of the types of locked on-chain assets, the agreement discloses that currently, 51% of Pharos's total locked assets come from new energy assets of distributed photovoltaic operators and centralized power station operators, while 49% come from financial assets of fund management companies and credit asset issuers.

That is to say, the total locked value of Pharos incorporates real assets into the calculation scope, and these assets are closely related to the parties involved in this transaction, setting a precedent in the Layer1 industry.

In fact, Pharos's mainnet has not yet officially announced its launch, and the professional on-chain data statistics platform DeFillama has not recorded Pharos's locked data, while the 250 million USD figure is entirely based on unilateral disclosures from the project party.

The stock price's advance movements, combined with the layered betting conditions in the agreement and the inflated valuation calculations, reveal the true purpose of this transaction: for GCL-Poly Energy, it may be a financial maneuver to hype the stock price using cryptocurrency concepts to boost the company's market value; for Pharos, it is an attempt to leverage the listed company's real assets to create a hype around high valuations for the upcoming Token listing. Both parties take what they need while leaving the risks to the market and subsequent investors.

When a real industry company injects real assets into a Layer1 project and easily creates a 950 million USD valuation based on multiple times the value of the real assets, is such a capital game excessively outrageous? Does the crypto market really need such RWA?

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