Deconstructing the public chain Pharos Capital's game: Is a $950 million valuation supported by assets like photovoltaics just a shell transaction under layers of betting?

Author: Gu Yu, ChainCatcher

After several months, the Layer 1 public chain track has recently seen another round of financing at a valuation of $1 billion. Pharos, claiming to be a high-performance parallel Layer 1 public chain, announced a new round of capital cooperation upgrade with the Hong Kong Stock Exchange listed company Xiexin New Energy. Xiexin New Energy completed an investment subscription for Pharos at a valuation of $950 million, amounting to $24.73 million.

Xiexin New Energy is a well-known private photovoltaic power generation company in China, mainly engaged in the development, construction, operation, and management of solar power plants, which aligns very well with Pharos's focus on RWA. It seems this is a transaction that holds positive strategic significance for both parties.

However, this transaction has raised many questions in the market. In the current bleak secondary market, can Layer 1 and RWA track projects really achieve a $1 billion valuation in the primary market? Would a listed company easily invest in such high-risk assets?

Interlinked Betting Transactions

Many details hidden in the complex announcement indicate that this is not a conventional direct financing transaction, but rather a bundled transaction of mutual investment, phased delivery, and market value betting, with all core delivery conditions firmly in the hands of Xiexin New Energy. If any condition is not met, this transaction will merely be a piece of paper without any substantive binding.

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

This transaction seems to favor Pharos, but Xiexin New Energy clearly understands the intricacies 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 only valid for 18 months. Specifically, this investment is divided into five batches of delivery, with unlocking conditions all linked to the listing performance of Pharos Token:

The first batch delivery ratio is 50%, which must occur only if Pharos Token successfully obtains approval for listing on relevant Web3 exchanges, and the opening price at listing is not lower than the company's agreed investment price (calculated based on a $950 million valuation). If it fails to list successfully or opens below the issue price, the company has the right not to proceed with the delivery.

The second batch delivery ratio is 12.5%, which must occur only if the average FDV (Fully Diluted Valuation) of Pharos Token in the three months prior to listing is not less than $760 million.

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

Once Pharos Token meets the delivery conditions, Pharos's subscription for shares in Xiexin New Energy will take effect, and Xiexin New Energy's subscription for Pharos Token will also take effect, with the unlocking ratios being consistent.

In other words, after Pharos Token successfully lists, Pharos will immediately deliver a share subscription worth HKD 75 million to Xiexin New Energy, while Xiexin New Energy will acquire Pharos Token valued at approximately HKD 96.73 million based on a $950 million valuation.

For Xiexin New Energy, this is a nearly risk-free transaction. On one hand, it can obtain HKD 75 million in share subscription funds, and on the other hand, if Pharos Token performs well, it can acquire tokens worth nearly HKD 100 million at the initial opening valuation, providing considerable profit margins.

The positive outlook has already been reflected in the stock price. Although Xiexin New Energy first disclosed the cooperation news with Pharos on January 8, its stock price had already been rising significantly a week prior, from HKD 0.8 to HKD 1.3 on the announcement date, and later peaked at HKD 1.8, 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, equivalent to HKD 62.61 million. Therefore, even if the pre-investment conditions are met, this funding gap may also pose a challenge for Pharos.

Source: RootData

How is the $950 million valuation derived?

Another interesting piece of information is that Xiexin New Energy also detailed in the agreement why it valued Pharos at $950 million. According to the agreement, the valuation of this investment is mainly based on the total locked value calculated on-chain. In the Layer 1 track, the average ratio of fully diluted market capitalization to total locked asset value for Ethereum, BSC, Hyperliquid, Tron, and Avalanche is 10 times, with a median of 6 times, and the ratio for similar technical routes like Monad is also 10 times.

Therefore, both parties decided to set Pharos's calculation coefficient at 4.75 times, while Pharos's current total locked asset value is $250 million, calculated at a 20% discount, leading to an initial valuation of $950 million.

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

This means that the total locked value of Pharos also includes physical assets and is closely related to the power stations and photovoltaic assets of the parties involved in this transaction. This method of calculation sets a precedent in the Layer 1 industry.

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

The early abnormal movements in the stock price, combined with the layered betting conditions in the agreement and the inflated valuation calculations, make it clear what the true purpose of this transaction is: for Xiexin New Energy, this may be a financial operation to leverage the crypto concept to hype stock prices and boost company valuation; for Pharos, it is an attempt to leverage the physical assets of a listed company to create a high valuation gimmick and generate momentum for the subsequent Token listing. Both parties get what they need, but leave the risks to the market and subsequent investors.

When a physical industry company injects physical assets into a Layer 1 project and can easily create a $950 million valuation based on multiples of the value of those physical assets, is this capital game too absurd? Does the crypto market really need such RWA?