BTCS Inc. Debt Disclosure

Note 10 – Debt

 

Loans Payable – Defi Protocol

 

The Company participates in decentralized finance (DeFi) borrowing activity through Aave, a smart contract–based protocol that facilitates overcollateralized loans backed by digital assets. Borrowings have no fixed maturity date and remain outstanding until repaid or liquidated in accordance with Aave’s protocol terms. Loans are subject to full or partial liquidation if the loan’s health factor falls below a protocol-defined minimum threshold, generally 1.0x. Such liquidation events could result in material losses and the Company has no recourse against the protocol or any counterparty in the event of liquidation, technical failure, smart contract vulnerabilities, or oracle manipulation. The health factor is calculated based on the value of the collateral relative to the loan balance and Aave’s liquidation threshold, which is generally 80% for ETH collateral. As of December 31, 2025, the Company has not experienced any full or partial liquidation events related to these borrowings.

 

During the year ended December 31, 2025, the Company borrowed an aggregate of approximately $122,947,000 which includes borrowings issued in connection with an on-chain debt refinancing transaction executed during the third quarter. In that transaction, the Company utilized Aave’s flash loan functionality to extinguish approximately $1,500,000 in outstanding USDT-denominated debt and simultaneously issue an equivalent amount of new borrowings denominated in GHO, Aave’s native overcollateralized stablecoin token, at a lower variable interest rate. Due to substantive differences in the borrowing terms, including a change in the underlying asset and revised rate structure, the transaction was accounted for as a debt extinguishment under ASC 470-50, and the Company recognized a loss on extinguishment of debt of approximately $9,000 during the period. The Company also repaid approximately $61,447,000 in principal during the period.

 

The following table summarizes the Company’s Defi borrowing activity during the year ended December 31, 2025:

 Summary of Defi Protocol Lending Activity   

		For the Year Ended December 31, 2025
Beginning balance – January 1, 2025		$	-
Proceeds from DeFi borrowings			122,947,000
Addition of debt (via swap)			1,500,000
Extinguishment of debt (via swap)			(1,500,000	)
Repayments of principal			(61,447,000	)
Ending balance – December 31, 2025		$	61,500,000

 

As of December 31, 2025, the Company’s outstanding borrowings consisted primarily of USD-pegged stablecoins, including USDT and GHO, obtained through the Aave protocol. The use of USD-pegged tokens does not materially impact the economic characteristics or risk profile of the borrowings.

 

As of December 31, 2025, the Company had approximately 59,737 Aave aEthWETH tokens representing wrapped ETH deployed within DeFi protocols and serving as collateral for outstanding borrowings, with a fair value of approximately $177,718,000. These assets remain recorded as ETH within Digital assets - DeFi on the balance sheet in accordance with ASC 350-60 and are measured at fair value using quoted prices in active markets (Level 1 inputs under ASC 820). See Note 3 – Summary of Significant Accounting Policies and Note 4 – Digital Assets for further detail regarding the accounting treatment and classification of these assets.

 

The loans accrue interest at variable rates determined by Aave’s on-chain interest-rate model, which automatically adjusts based on market utilization and liquidity conditions. These rates are published and updated in real-time on the Aave protocol’s website.

 

For the year ended December 31, 2025, the Company recognized approximately $1,454,000 in interest expense, of which approximately $225,000 remained unpaid and is included in Accrued interest payable on the balance sheet at period end.

 

The Board has approved the use of Aave for borrowing activities, subject to a maximum loan-to-value (“LTV”) ratio and debt-to-asset (“DTA”) coverage limitation of 40% at the time of borrowing. The Board also approved temporary exceedances of these limitations for operational purposes, provided such exceedances do not exceed two days.

 

 

BTCS Inc.

NOTES TO FINANCIAL STATEMENTS

 

Convertible Notes Payable

 

On May 13, 2025 and July 21, 2025, the Company entered into separate Securities Purchase Agreements with accredited investors, pursuant to which it issued 5% Original Issue Discount Senior Secured Convertible Notes (the “May Notes” and “July Notes”, respectively, and together, the “Notes”) in the aggregate principal amounts of $7,810,526 and $10,050,000 for gross cash proceeds of $7,420,000 and $9,537,500, respectively. In connection with the issuance of the Notes, the Company also issued warrants to purchase an aggregate of 2,781,291 shares of the Company’s common stock, with 1,901,916 warrants issued under the May Notes exercisable at $2.75 per share, and 879,375 warrants issued under the July Notes exercisable at $8.00 per share. The warrants issued in connection with both offerings have a five-year term from the respective issuance dates.

 

The Notes are convertible into shares of the Company’s common stock at conversion prices of $5.85 and $13.00 per share for the May Notes and July Notes, respectively, mature twenty-four months from their issuance dates, accrue interest at an annual rate of 6% payable quarterly in either cash or freely tradable shares at the Company’s election, contain a 4.99% beneficial ownership conversion limitation (subject to increase to 9.99% upon 61 days notice), and are secured by substantially all of the Company’s assets, excluding Ethereum deposited as collateral for USDT borrowings on Aave and certain other customary exclusions. In connection with the July Offering, the Company agreed not to amend the conversion terms of its Series V Preferred Stock for a period of 18 months while the July Notes remain outstanding.

 

The May Offering included participation by the Company’s Chairman and Chief Executive Officer, who invested $95,000, as well as a trust for which he is a beneficiary, which invested an additional $200,000. The July Offering included an investment of $47,500 by the same trust. The participation by the Chairman and CEO and the related trust were approved by an independent committee of the Board.

 

H.C. Wainwright & Co., LLC acted as the Company’s exclusive placement agent in connection with both offerings. The Company incurred total transaction-related costs of approximately $254,000, which included legal, placement agent, and other issuance expenses. These costs, together with the original issue discount and the allocated fair value of the warrants, were recorded as a debt discount in accordance with ASC 470-20 and are being amortized over the term of the Notes using the effective interest method. The warrants were determined to be freestanding equity-classified instruments and were valued using the Black-Scholes option pricing model.

 

Interest Expense

 

For the year ended December 31, 2025, the Company recognized total interest expense of approximately $3,518,000, which includes contractual interest, the amortization of debt discounts and issuance costs using the effective interest method , and variable interest on DeFi loans.

 

Of this amount, approximately $567,000 related to contractual interest on the Company’s convertible notes, approximately $1,497,000 represented non-cash amortization of debt discount and issuance costs, and approximately $1,454,000 related to interest incurred on DeFi borrowings. The Company paid approximately $1,796,000 of interest in cash and stablecoins during the period, with the remainder representing non-cash or accrued amounts.