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The Bonds Behind the Blockchain

How Convertible Bonds Are Financing the Next Generation of Digital Infrastructure 

Convertible bonds have become one of the preferred financing tools across the digital asset industry. Here’s why companies issue them, why investors buy them, and how they help finance the next generation of digital infrastructure.

There is a quiet instrument playing an outsized role in the digital asset economy, and almost no one outside fixed-income circles talks about it: the convertible bond.

From bitcoin miners and AI infrastructure providers to blockchain technology companies, many of the industry’s fastest-growing businesses have increasingly turned to convertible debt to finance expansion. The reason is straightforward. Convertible bonds offer companies a flexible way to raise capital while balancing borrowing costs, shareholder dilution, and long-term growth objectives.

As the digital asset industry matures, access to sophisticated capital markets is becoming just as important as technological innovation. Convertible bonds have emerged as one of the key financing tools supporting that evolution.

What Is a Convertible Bond? 

A convertible bond is a corporate bond that gives investors the option to convert their debt into a predetermined number of common shares if certain conditions are met.

Like a traditional bond, it pays interest, carries a maturity date, and requires the issuer to repay principal at maturity. What distinguishes it is its embedded conversion feature, allowing investors to participate in future equity appreciation if the company’s stock performs well.

In simple terms, convertible bonds allow companies to borrow money like traditional debt while giving investors the opportunity to participate in potential future stock gains. For growth-oriented businesses, this may lower financing costs while limiting immediate shareholder dilution.

Why Do Digital Asset Companies Issue Convertible Bonds? 

Many companies across the digital asset ecosystem share a common challenge: they require significant amounts of capital today to build businesses designed to generate value over many years. Whether constructing AI-ready data centers, expanding bitcoin mining capacity, investing in high-performance computing infrastructure, or developing blockchain technology, these businesses often need to finance large projects well before those investments begin producing meaningful cash flow.

Traditional corporate debt can be expensive. Issuing new equity immediately dilutes existing shareholders. Convertible bonds provide an attractive middle ground. By offering investors the possibility of future equity participation, companies can often borrow at lower coupon rates than conventional debt would require. That allows management teams to preserve cash, maintain financial flexibility, and continue investing in long-term growth initiatives.

The growing use of convertibles also signals something larger about the industry’s evolution. Digital asset companies are increasingly financing themselves through the same institutional capital markets long used by technology, healthcare, and industrial businesses. Their financing choices increasingly resemble those of established growth companies rather than early-stage startups.

How Are Convertible Bonds Being Used Across the Digital Asset Industry? 

The financing structures adopted by many digital asset companies illustrate why convertibles have become so popular.

CleanSpark issued zero-coupon convertible notes due 2030, while Hive Digital structured zero-coupon convertible notes due 2031, allowing both companies to finance infrastructure expansion without ongoing cash interest payments.[1] [2] Riot Platforms, Applied Digital, TeraWulf and Bit Digital (all holdings as of 7/23/26) chose low-coupon convertible notes that reduce borrowing costs while preserving the potential for future equity conversion as their businesses continue to grow.

These securities finance projects extending well beyond cryptocurrency mining. Many issuers are expanding into AI-ready data centers, high-performance computing infrastructure, and digital services that require substantial upfront investment but are expected to generate long-term cash flows.

The trend also extends beyond pure digital asset companies. Innovative businesses across technology and financial services, including companies such as Robinhood and SoFi (both holdings as of 7/23/26), have likewise utilized convertible financing to support growth. Together, these examples demonstrate that convertible bonds have evolved from a niche financing instrument into a mainstream source of capital for innovative, capital-intensive businesses.

Why Do Investors Buy Convertible Bonds?

Convertible bonds offer a distinctive combination of fixed-income characteristics and potential equity participation.

Unlike common shareholders, bondholders generally rank higher in the capital structure, providing an additional layer of protection if financial conditions deteriorate. At the same time, if a company’s stock appreciates beyond the conversion price, investors may potentially benefit from part of that upside through the bond’s embedded conversion feature.

The result is a security that combines characteristics of both debt and equity without behaving exactly like either.

Institutional demand reflects that appeal. Public convertible bond funds hold positions in companies such as Core Scientific and Riot Platforms, illustrating investor interest in businesses operating at the intersection of digital assets, AI infrastructure, and data center development.

Sources
  1. CleanSpark, ”CleanSpark Announces Closing of $650 Million Zero-Coupon Convertible Notes Offering,” December 17, 2024.
  2. HIVE Digital Technologies, ”HIVE Announces Closing of Private Offering of $130 Million of 0% Exchangeable Senior Notes due 2031,” June 30, 2026.
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The Fund does not invest directly in digital assets; however, it will be subject to the risks associated with digital assets by virtue of this investment. The fund is subject to significant risks that are not typically present in other investments, including possible loss of principal.

Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call 866-379-6199 or visit our website at www.DADSETF.com. Read the prospectus or summary prospectus carefully before investing.

As used herein, Digital Asset Debt Securities, or DAD Securities, means debt securities of issuers that are directly involved in digital asset-related activities, such as mining digital assets, holding digital assets in their corporate treasury or government treasury, and/or working on platforms to facilitate payment with, or the transfer of, digital assets.

Bitcoin & Digital Assets Risk. While the Fund will not directly invest in digital assets, it will be subject to the risks associated with bitcoin by virtue of its investments in DAD Securities that hold bitcoin or other digital assets. Investing in digital assets exposes investors to significant risks that are not typically present in other investments. These risks include the uncertainty surrounding new technology, limited evaluation due to bitcoin’s short trading history, and the potential decline in adoption and value over the long term. The extreme volatility of the price of bitcoin and other digital assets is also a risk factor.

Fixed Income Securities Risk. The prices of fixed income securities respond to economic developments, particularly interest rate changes, as well as to changes in an issuer’s credit rating or market perceptions about the creditworthiness of an issuer. In general, the market price of fixed income securities with longer maturities will increase or decrease more in response to changes in interest rates than shorter-term securities. Changes in government intervention may have adverse effects on investments, volatility, and illiquidity in debt markets. These changes could cause the Fund’s net asset value to fluctuate or make it more difficult for the Fund to accurately value its securities.

Derivatives Risk. Derivatives are financial instruments, such as futures contracts, options and swaps, that derive value from the underlying reference asset or assets, such as stocks, bonds, or funds (including ETFs), interest rates or indexes. The Fund’s investments in derivatives may pose risks in addition to, and greater than, those associated with directly investing in securities or other ordinary investments, including risk related to the market, imperfect correlation with underlying investments or the Fund’s other portfolio holdings, higher price volatility, lack of availability, counterparty risk, liquidity, valuation, and legal restrictions. The use of derivatives is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The use of derivatives may result in larger losses or smaller gains than directly investing in securities. When the Fund uses derivatives, there may be imperfect correlation between the value of the underlying instrument and the derivative, which may prevent the Fund from achieving its investment objective.

Convertible Securities Risk. The Fund will invest in convertible securities of companies which are preferred stocks or bonds that pay a fixed dividend or interest payment and are convertible into common stock or other equity interests at a specified price or conversion ratio during a specified period. Convertible securities generally have less potential for gain than common stocks. Also, convertible bonds generally pay less income than non-convertible bonds. Convertible securities tend to provide higher yields than common stocks. However, a higher yield may not protect investors against the risk of loss or adequately mitigate any loss associated with a decline in the price of a convertible security.

Digital Asset Treasury Companies Risk. Issuers whose business is holding bitcoin or other digital assets in their corporate treasury face unique risks as a result of holding digital assets in their corporate treasury. The speculative perception of digital assets may overshadow the fundamentals of such companies, leading to exaggerated price movements based on hype or fear. The value of the Fund’s investments in instruments that provide exposure to bitcoin corporate treasury companies – and therefore the value of an investment in the Fund – could decline significantly and without warning. If you are not prepared to accept significant and unexpected changes in the value of the Fund, you should not invest in the Fund.

Foreign and Emerging Markets Risks. Investments in foreign securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid, and more volatile than securities markets in more developed markets.

Liquidity. The Fund may lose money or be prevented from earning capital gains if it cannot sell security at the time and price that is most beneficial to the Fund.

High Yield Bonds. High-yield bonds have a higher risk of default or other adverse credit events but have the potential to pay higher earnings over investment grade bonds. The higher risk of default, or the inability of the creditor to repay its debt, is the primary reason for the higher interest rates on high-yield bonds. Examples of other adverse credit events are interest rate risk (when interest rates rise, bond prices fall) and economic risk (the risk associated with downturns in the economy).

Credit Risk. A bond’s credit rating reflects the issuer’s ability to make timely payments of interest or principal—the lower the rating, the higher the risk of default. If the issuer’s financial strength deteriorates, the issuer’s rating may be lowered, and the bond’s value may decline.

Municipal Securities Risk. Funds that invest in municipal obligations of issuers will be affected by economic, political, or other events affecting municipal issuers, which may affect the Fund’s ability to acquire and dispose of municipal obligations at desirable yield and price levels.

Other Investment Companies Risk. The Fund will incur higher and duplicative expenses when it invests in ETFs and other investment companies. By investing in another investment company, the Fund becomes a shareholder of that investment company and bears its proportionate share of the fees and expenses of the other investment company. There is also the risk that the Fund may suffer losses due to the investment practices of the underlying funds as the Fund will be subject to substantially the same risks as those associated with the direct ownership of securities held by such investment companies. ETFs may be less liquid than other investments, and thus their share values are more volatile than the values of the investments they hold.

Mid/Small Capitalization. Investments made in small and mid-capitalization companies may be more volatile and less liquid than large company stocks due to limited resources or product lines and greater sensitivity to adverse economic conditions.

New Fund Risk. The Fund is a recently organized, giving prospective investors a limited track record on which to base their investment decision.

New Sub-Adviser Risk. Although the Sub-Adviser’s principals and the Fund’s portfolio managers have experience managing investments in the past, the Sub-Adviser has no experience managing investments for an ETF, which may limit the Sub-Adviser’s effectiveness.

Distributed by Foreside Fund Services, LLC.

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