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Liquid Meta Capital Holdings Ltd. (NEO:LIQD) a leading decentralized finance (DeFi) infrastructure and technology company, is not being represented as such on the public exchanges. Trading at less than half of its go-public price and near cash value of its balance sheet, the company—which listed on December 22, 2021—has been caught in the risk asset meat grinder in Q1 2022. But does an ill-timed IPO (an unavoidable matter of timing) and moribund market conditions provide an opportunity for investors at current prices? Quite possibly, yes.
A quick background on Liquid Meta Holdings: The company is a technology developer in the institutional DeFi space creating a proprietary system named MetaBridge. While the development of MetaBridge is in its nascent buildout phase, Liquid Meta has active liquidity mining operations which earns tokens (yields) for providing liquidity to various DeFi liquidity pool protocols. This operation is generating revenue, and due to relatively low Operational Expense (OpEx) costs, could generate substantial free cash flow in Year 1. Note: Liquid Meta has not provided financial or operational guidance.
Despite a promising foundation which includes a cashed-up balance sheet and emerging tech stack, Liquid Meta’s stock has been caught up in the same downdraft affecting most crypto and risk asset classes to begin 2021. So much so that at C$27.19 million fully diluted, the company is basically trading at cash value.
So with Liquid Meta in the described condition, we looked into whether the company was a compelling value at these seemingly depressed prices. Indeed, we found reasons for optimism.
Trading At Cash, But Not Hemorrhaging Money
With approximately US$22 million on its balance sheet, Liquid Meta came to market on the NEO Exchange with sufficient working capital to maneuver. Unlike a pharmaceutical drug developer or money-losing cannabis LP, the company does not run a business model demanding expensive capital outlays. It is the contrary: a model with a lean OpEx structure which preserves cash. As CEO Jon Wiesblatt recently stated, Liquid Meta has enough cash to last 10 years before needing to raise money at current burn rates. That’s a tremendous amount of leeway to make that eventual quantum leap as a company.
Simultaneously, Liquid Meta’s core liquidity mining operations are already generating revenue and high gross profit margins, even after the costs of protecting capital are factored-in. For Q2 2021, the company generated US$188,229 and 96% gross profit margin and 76% gross profit margin including the loss on digital currency inventory and hedging. As a result, net loss was a paltry $104,930.
Subsequent to the second quarter, Liquid Meta deployed an additional US$20 million into its strategies, which we believe can be scaled without slippage. If the capital deployment proves seamless, the company could be adding cash to its balance sheet rather than subtracting.
Another quarter or two of operating history should give investors increased confidence in Liquid Meta’s liquidity mining operability metrics going forward. We’re staying tuned.
Don’t Underestimate The Management Team
Every investor knows that having a great management team is paramount to the success of an organization—irrespective of the industry. Doubly so when the CEO is managing the plurality of company cash directly, deployed in a volatile asset class such as crypto. With the deployment of advanced strategies and hedges needed to generate consistent yields, it’s no time for an amateur calling the shots.
Fortunately, Liquid Meta appears to have its bases covered. The man managing the capital is CEO Jonathan Wiesblatt, who has extensive Portfolio Manager experience at leading Canadian Funds such as Sprott and Ninepoint Partners. As most PMs do, Mr. Wiesblatt places utmost importance on protecting capital, so returns have been smooth and hedged against large swings in performance inherent to the underlying volatile coins.
Ultimately, we believe highly in the credentials of Liquid Meta’s chief capital shotcaller. And that goes a long way when deciphering whether the company’s human capital is qualified enough to protect its monetary capital downstream.
DeFI Is Huge, And Liquid Meta Is Differentiated
Total Value Locked (TVL) – a measure of DeFi transaction value – grew by 14x in 2020. And in 2021, TVL more than quadrupled to a total value of $112.07 billion at its peak. Three years ago, the market value was virtually zero. Needless to say, the market has been growing exponentially and outsized growth is likely for the foreseeable future.
Unlike most of its competitors, Liquid Meta is not developing a B2B platform for the retail market, where customer acquisition costs can be substantial. It is focusing on institutions, funds and high net worth entities—a demographic that will drive DeFi capital flows in the future, if it isn’t doing so today. Liquid Meta is also the only pure-play publicly traded liquidity miner, which should drive both free cash flow and developmental precision to its MetaBridge platform.
While it’s impossible to know who DeFi’s ultimate winners will be, the attributes displayed by Liquid Meta may be attractive to some investors looking for speculative DeFi exposure, but without the ridiculous multiples. With the company trading for cash and fully-funded for an indefinite period at the current burn rate, the market is completely discounting the future earnings potential of the company. What that might look like is unclear, but investors are getting a pretty attractive entry point to find out.