“Digital credit,” Solana edition: DFDV raises CHAD to 14% five weeks after launch

DeFi Development Corp. (NASDAQ: DFDV) is lifting the dividend on its CHAD preferred stock to 14% from 13% starting November 2. 

This increase comes roughly five weeks after launching the security. The Solana treasury firm says the move will pull in more buyers to fund its SOL purchases.

What did DeFi Development Corp. increase?

DeFi Development Corp. has announced that it will be lifting the dividend on its CHAD preferred stock by 100 basis points. This means that on CHAD’s $10 stated amount, annual dividends will now be $1.40 per share from $1.30, which the company puts at about 7.7% more income per share. 

At the $10 stated price, the new rate adds up to about a 14.0% annualized cash yield. Buyers who pay less than $10 would earn more on their purchase, but that depends on whether the rate holds and payments keep coming. The first $1.40-rate payments will reportedly begin on November 2.

The company’s CEO Joseph Onorati said in the release that the company sees room to build CHAD into “a leading digital credit instrument,” which expands its ability to buy SOL while limiting dilution for common holders.

CHAD is DFDV’s Variable Rate Series C Perpetual Preferred Stock. It has no maturity date and cannot be converted into common shares. The company sold 1.375 million shares at $8 each for about $11 million on September 8. The effective yield at that time ran closer to 16.25%.

CHAD is designed to raise money without diluting common shareholders. How? Well, DFDV sells it, uses the money to buy SOL, and then does it again. 

Through that system, the number of common shares stays the same while the SOL treasury continues growing. The company has a $300 million program to sell CHAD shares little by little, and it says future proceeds will also be used to buy more SOL.

As of mid-October, the treasury held about 2.59 million SOL, roughly 12% more than it reported at the company’s August 12 earnings update. The SOL earns returns through staking and validator operations, which the company says is what funds CHAD’s payments.

Will DFDV buy back its stocks? 

DFDV saw its common stock drop about 21% in the week covered by its October 12 release, closing near $4.32 for a market value around $141 million, as Cryptopolitan reported. CHAD, on the other hand, hit record highs and climbed toward its $10 stated amount even as SOL pulled back. 

Dan Kang, the company’s Chief Strategy Officer, said investors are starting to see the value in CHAD’s unique income offering, pointing out that CHAD can pay for SOL growth without issuing new common shares. 

On October 6, the board also approved an ongoing program to buy back CHAD shares if the price falls below $10, but management has said it has no plans to buy right now and would first like the stock to trade at or near $10.

The “digital credit” framing that CEO Onorati is referring to now echoes an idea pioneered by Michael Saylor at Strategy (NASDAQ: MSTR). 

Strategy adopted a “Digital Credit Capital Framework” on June 29 to support its preferred securities, per an SEC filing. Strategy’s own variable-rate preferred, STRC, carries a 12% rate.