Dissecting the Pharos Capital Game: Is a $950 Million Valuation Propped Up by Photovoltaic Assets? A Hollow Shell Deal Under Layers of Hedging?

Author: Gu Yu, ChainCatcher

After several months, the Layer 1 public chain sector has recently seen another funding round valued at $1 billion, claiming to be a high-performance parallel Layer 1 blockchain. Pharos announced a new round of capital cooperation with GCL New Energy Holdings, a listed company on the Hong Kong Stock Exchange. GCL New Energy invested in Pharos at a valuation of $950 million, with an investment amount of $24.73 million.

GCL 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. This aligns closely with Pharos’s focus on RWA (Real-World Assets) development, making this a strategic deal beneficial to both parties.

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

Mutually Binding Betting Deal

Many details hidden within the complex announcements indicate that this is not a typical direct financing deal. Instead, it is a bundled transaction involving mutual investments, phased delivery, and market cap betting, with all key conditions firmly controlled by GCL New Energy. If any condition is not met, the entire deal becomes a non-binding document with no real enforceability.

Specifically, Pharos’s subscription for GCL New Energy shares is a pre-commitment investment, allowing it to subscribe for up to 183,480,000 new shares at HKD 1.05 each, worth about HKD 150 million. This price is approximately 15% below GCL New Energy’s current price of HKD 1.23.

While this looks like a bargain for Pharos, GCL New Energy is clearly experienced in financial maneuvers. The subscription has five strict delivery thresholds, and if any one of these is not met, all subsequent deliveries will be terminated. The entire agreement is valid for only 18 months. The investment is split into five tranches, with unlocking conditions tied to the listing performance of Pharos Token:

• The first tranche (50%) will only be delivered if Pharos Token is successfully approved for listing on a relevant Web3 exchange and the opening price is not lower than the company’s agreed investment price (based on a $950 million valuation). If the listing fails or the price drops at opening, the delivery will not proceed.

• The second tranche (12.5%) requires that, within three months before Pharos Token’s listing, the average FDV (Fully Diluted Valuation) must be at least $760 million daily.

Subsequent tranches have similar unlocking conditions, mainly based on the average FDV over different periods: months four to six, seven to nine, and ten to twelve.

Once Pharos Token meets the delivery conditions, the subscription for GCL New Energy shares will take effect, and the subscription for Pharos Token will also be activated, with proportional unlocking.

In other words, after Pharos Token’s successful listing, Pharos will immediately deliver HKD 75 million worth of shares to GCL New Energy, and GCL New Energy will acquire Pharos Tokens valued at approximately HKD 96.73 million based on the $950 million valuation.

For GCL New Energy, this is almost a risk-free deal: it gains HKD 75 million in share subscription funds and, if Pharos Token performs well, can also obtain tokens worth nearly HKD 100 million at initial opening, with significant profit potential.

This positive sentiment is already reflected in the stock price. Although GCL New Energy first announced the partnership with Pharos on January 8, its stock had already risen sharply a week earlier, from HKD 0.8 to HKD 1.3 on the announcement date, then peaked at HKD 1.8 before declining. In the trading market, this pattern resembles typical “pump and dump” behavior.

Another potential issue is that Pharos previously disclosed a total funding of only $8 million, equivalent to HKD 62.61 million. Even if the pre-investment conditions are met, this funding gap could pose a challenge for Pharos.

Source: RootData

How was the $950 million valuation determined?

Another interesting detail is that GCL New Energy also explained why it valued Pharos at $950 million in the agreement. According to the deal, this valuation is mainly based on the on-chain total locked assets (TVL). In the Layer 1 sector, the average ratio of fully diluted market cap to total locked assets for Ethereum, BSC, Hyperliquid, Tron, and Avalanche is 10x, with a median of 6x. Similar projects like Monad have a ratio of 10x.

Therefore, both parties agreed to set Pharos’s valuation coefficient at 4.75x. Currently, Pharos’s total locked assets are valued at $250 million, and with a 20% discount, the initial valuation is set at $950 million.

Regarding the types of assets locked on-chain, the agreement discloses that 51% of Pharos’s locked assets come from distributed photovoltaic operators and centralized power plant operators, representing renewable energy assets. The remaining 49% come from fund management companies and credit asset issuers, representing financial assets.

This means that Pharos’s total locked value includes physical assets, specifically power stations and photovoltaic assets closely related to the transaction parties. This sets a precedent in the Layer 1 industry.

In fact, Pharos has not yet officially launched its mainnet, and the professional on-chain data platform DeFillama has not recorded any locked asset data for Pharos. The reported $250 million is solely disclosed by the project team.

The early stock price movements, combined with the layered betting conditions and inflated valuation calculations in the agreement, suggest the real purpose of this deal: for GCL New Energy, it may be a financial maneuver to hype the stock price and boost company valuation using crypto concepts; for Pharos, it appears to be an attempt to leverage physical assets of a listed company to create high valuation hype and generate momentum for future token listings. Both sides are pursuing their interests while leaving risks to the market and future investors.

When an industrial company injects physical assets into a Layer 1 project and easily claims a $950 million valuation based on multiples of asset value, isn’t this a reckless capital game? Does the crypto market really need such RWAs?