The Core Mechanism of Equity Dilution: Share issuance alters the distribution of per-share equity, transferring value from existing shareholders to new shareholders unless certain ideal conditions (e.g., the market fully accepts the issuance without adjusting valuation) persist. Below, I use mathematical calculations to demonstrate why this effect is unavoidable in reality and ultimately destroys the logic of a "perpetual loop."

1. Example Assumptions

Initial State:

• Company assets: $10 billion ETH (net assets = $10 billion, assuming no liabilities).

• Market cap: $11 billion (implying a 10% premium, possibly due to growth expectations or speculation).

• Assuming total shares outstanding = S, then:

  • Net asset value (NAV) per share = $10 billion / S, share price = $11 billion / S (premium = 10%).

Action: Raise $5 billion (issue new shares), all used to buy $5 billion ETH.
To keep the share price unchanged, the issuance must be priced at the current share price ($11/S). This is a "market-price issuance."

2. Post-Issuance Calculations
   (Assuming a market-price issuance with unchanged share price)

• New shares issued: To raise $5 billion, new shares N = 0.4545S.

• New total shares outstanding: 1.4545S.

• New total assets: $10 + $5 = $15 billion ETH.

• New NAV per share: $15 / 1.4545S (a ~3.13% increase from the initial $10/S).

• New market cap (assuming the market accepts unchanged share price): $16 billion.

• New premium: $1 / $15 = 6.67% (down from 10%).

Superficially, the share price remains unchanged ($11/S), and NAV per share even slightly increases.

But hidden here is the dilution effect:

• Value transfer occurs: The new $5 billion in assets is shared by all shareholders (old + new). Existing shareholders' ownership drops from 100% to 68.75%. They originally owned 100% of $10 billion; now, they own 68.75% of $15 billion (~$10.313 billion), a net increase of $0.313 billion. But without the issuance, they could have owned $11 billion; here, new shareholders share part of the appreciation at a "discount" (due to premium compression).

• Not real appreciation: The $5 billion issuance is external capital injection, not internally generated value. Its "appreciation" is an accounting illusion—like depositing someone else's money into your family bank account and claiming household wealth has increased.

• Premium compression is a warning: The initial 10% premium reflects market optimism about "growth potential" (e.g., expectations of more issuance loops). But each issuance dilutes this potential, causing the premium to gradually decline (from 10% to 6.67%, lower next time).

Why? Because the company is essentially an "ETH holding shell" with no unique business. The market will eventually treat it as an ETH ETF (market cap ≈ NAV, premium → 0). Once the premium hits 0, further issuance cannot be priced above NAV, or no one will buy.

3. Continuous Loops Amplify and Break the Model
   Assume repeating the example several times (each time raising 50% of current assets, issuing at the then-current share price, assuming share price unchanged):

• After Round 1: Assets $15B, market cap $16B, premium 6.67%.

• Round 2: Raise $7.5B (50% of $15B), new shares ≈ 0.46875S' (S' = current shares), new assets $22.5B, new market cap $23.5B, premium ≈ 4.44%, NAV per share increases but premium keeps falling.

• Round 3: Similar, premium drops to ≈3%.

After several rounds, the premium approaches 0. At this point:

• Issuance price is forced to equal NAV per share (no premium room).

• NAV per share stops increasing: E.g., assets A, shares T, issue 0.5A (priced at A/T), new shares = 0.5T, new assets 1.5A, new NAV per share = 1.5A / 1.5T = A/T (unchanged).

• Loop fails: No "share price increase" to drive the next issuance. The model shifts from "appreciation" to "zero-sum"—new capital merely dilutes old shares, with no net benefit.

This is the dilution effect in action: initially masked by the premium, later exposed, causing value transfer (new shareholders enter at low cost, old shareholders' equity is diluted).

4. If Not Market-Price Issuance, Dilution Is More Obvious
   (Closer to a "par-value issuance" scenario)

5. Why This Effect Is Unavoidable in Practice

• Markets are not infinitely rational or optimistic: Your assumption relies on the market forever accepting "unchanged share price," but investors will calculate dilution (using EV/EBITDA or NAV discount models). Once they realize the model lacks intrinsic cash flows (no dividends, just ETH holdings), FOMO turns to panic, and the share price collapses prematurely.

• Mathematical inevitability: Dilution is arithmetic. Unless the growth rate from issuance > dilution rate (Gordon model: value = D/(r-g), where g is growth but g depends on external ETH price rises, not perpetual), value does not increase.

In short, BMNR's new shareholders continuously erode old shareholders' equity through issuances, masked only by ETH price rises. Other "stock tokens" are similar—the larger the issuance size relative to current market cap, the faster the dilution effect!