Retail Investors Face Mounting Losses as DAT Structures Expose Hidden Risks

The growing popularity of Digital Asset Trusts (DATs) is revealing significant vulnerabilities for retail investors, especially as volatile market conditions continue to erode crypto valuations. Recent estimates indicate that more than $17 billion in crypto market value has evaporated, leaving many traders questioning the reliability of these investment vehicles. As Bitcoin dipped below $100,000, confidence in DATs has weakened further.

A Bloomberg analysis shows that many DATs, once trading at substantial premiums, are now slipping below their net asset value. Analysts warn that these structures can resemble circular trading systems, where liquidity appears strong until market stress exposes the fragility underneath. According to Chris Holland of HM, when liquidity truly gets tested, retail investors may be the ones absorbing the losses these structures were supposed to prevent. Research from 10X underscores this risk, noting that retail participants have already taken on billions in losses from DAT products modeled after high-profile strategies like those of Michael Saylor.

A major concern is the increasing use of in-kind contributions, where sponsors deposit their own illiquid or unlisted tokens instead of raising cash to buy assets on the open market. While this may create an illusion of capital inflow, it often recycles value rather than generating real demand. When markets shift, the fallout can fall directly on shareholders, especially smaller investors who lack the cushion institutional players enjoy.

Recent examples show how damaging this trend can be. Flora Growth Corp launched a $401 million DAT tied to Zero Gravity tokens, but only a fraction of that was actual cash. Once listed, token values plunged from $3 to around $1.20, triggering a steep decline in the firm’s stock—over 65%. Similarly, Alt5 Sigma and Tharimmune pursued large DAT raises primarily backed by illiquid tokens, only to see their asset values drop sharply once trading began. Analysts caution that DATs funded mostly through in-kind assets effectively function as thin equity wrappers around highly volatile tokens, leaving retail investors disproportionately exposed.

This unfolding pattern signals growing systemic risk within DAT-driven investment strategies, emphasizing the need for greater transparency and more robust investor protections as the crypto market matures.