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- [00:04]
A
What if comparing Bitcoin to gold was never the right framing for understanding Bitcoin's potential? What if Bitcoin is digital gold is just this bootloader narrative for something much bigger, much more profound and massively disruptive to the entire capital stack of modern finance. There's a reason why Michael Saylor doesn't call Bitcoin digital gold. Instead he calls it digital capital. He's been actively expanding Bitcoin into a bigger taxonomy. Digital capital, digital credit, digital equity. If you rewind the clock to the earlier years of Bitcoin, you'll find echoes of this same narrative. Hyper Bitcoinization isn't really a phrase that you hear often anymore. At least not in my circles. But in my early years of crypto, hyper Bitcoinization was the gold standard meme echoed across bitcoiner circles. It was deafening. And as someone in the much smaller, more modest Ethereum community, it was annoyingly hard to pierce. Hyper Bitcoinization is when Bitcoin becomes the dominant or sole global currency, displacing fiat currencies entirely. The idea is that a tipping point occurs where a a gradual adoption curve begins to accelerate into a race condition, a positive feedback loop where the last people holding fiat lose and the world begins to recognize Bitcoin as superior money. Bitcoin is the denominator and everything divided by 21 million are actually still memes chanted today that came out of this hyper Bitcoinization idea. Fast forwarding to today. The crypto industry didn't exactly take the path envisioned by Bitcoiners in 2018, and especially not Ethereum's in 2020. But nonetheless, I do have to give credit to this early concept of hyper bitcoinization because it's being reincarn in this new modern idea of Bitcoin as digital credit. Bitcoin doesn't need to convince the people of the world to denominate their wealth in Bitcoin. Asking for behavior change at this magnitude is simply asking too much. It's too radical. Reality is far more modest. Reality is somebody just needs to take that risk and offer 11 or 13% fiat denominated yields so they can capture Bitcoin's 30% year over year average upside. My guest today on the show has a background in insurance and structured finance, which are the exact industries that he thinks are perfect target customers for these financial products. High yield collateral backed equities. In fact, according to him, these products are so devastatingly simple that they short circuit people's brains when they try to reason about them. While the rest of the world of structured yield products and insurance funds go to incredible lengths to produce the financial alchemy needed to maximize their BIPs, products like stretch or SATA stripped out the complexity and actually offer better yields. The simple elegance of these digital credit products, my guest thinks, is what will cause them to grow into the hundreds of billions of dollars in size. All of which flows back to Bitcoin, which fundamentally changes the potential tam of Bitcoin itself, elevating it from digital gold to digital capital. My guest today is Jeff Walton, and he is the Chief Risk officer at Strive, a company structured very much like strategy and has their own perpetual preferred equity. Also much like strategy Stretch, which they call SATA SATA. You may have recently seen Jeff on Coffeezilla's podcast where he debated whether or not strateg Stretch product is a Ponzi or not, which is where we start off this conversation. But I'm more open and agreeable than Coffeezilla. And by the end of this conversation, Jeff got me doing something that I've actually had a hard time recently doing in crypto, which is to dream bigger dreams. Jeff, welcome to Bankless.
- [03:18]
B
Thanks for having me. Happy to be here, Jeff.
- [03:20]
A
Why isn't Stretch a Ponzi?
- [03:24]
B
Why isn't Stretch a Ponzi? Stretch isn't a Ponzi scheme because it is a balance sheet that is taking risk on each individual instrument that is sold for the company. That's it.
- [03:37]
A
So, Jeff, you were in a conversation with Coffeezilla, which is where you came on my. My radar. And Coffee had a lot to say about a lot of things around Stretch. I think most of it was started off with the marketing. And I think you did a pretty good job kind of like containing the conversation to be more reasonable and realistic. And I kind of want to take that a step further. I'm not as antagonistic as Coffee to the concept of Stretch, but still, I do understand the way I understand Stretch. And you have also a very similar product, perhaps structurally identical, called SATA S A T A. Yeah. And so you're doing a very similar thing. And so the way that I understand this product is that it, the difference between it being like quote, unquote, a Ponzi or blowing up versus being a just a solid financial product is all down to risk management. Is that true?
- [04:37]
B
I would say risk management and balance sheet structure, really, these are. These are capital vehicles. These are companies that hold capital and they're taking on risk with that capital. Now that capital, you're Taking on risk on the balance sheet capital. Right? It's not, it's not like I'm deploying each one of my individual Bitcoin and going to go get it, you know, go sell a derivative against the underlying Bitcoin. I'm using my balance sheet as capital and I'm creating risk layers on my balance sheet. I'm using the capital structure of my entire company to take on risk. Now that sounds risky to a lot of people, but the relative risk profile, when you look, when you look at the math and start to think about how this is designed, how it is structured, I think the risk profile is significantly misunderstood.
- [05:29]
A
One of the concerns or flags that raise is in my mind, admit maybe many other people who hold larger positions of stretch or SATA, is that there is no assurances that there will be Bitcoin sold to fund the dividends. Like it's actually not. It's an equity instrument. And so as an equity instrument, it could be wiped out. There is no investor protections. Now, I want to talk you to talk about the preferred angle. I'm sure that's relevant here, but there's still no like hard coded investor protections to force strategy to sell Bitcoin to fund my oblique, my interest obligations and, or even retain my principal and talk about that decision as a financial asset that, that strategy and also you have made.
- [06:20]
B
So look, we're selling a credit product, right? So there's an element of credit worthiness and trust. If you came down to a situation where you don't pay a dividend, that impacts the trust, that impacts the credit profile, that impacts how the market may view your individual instrument. So speaking for us, I mean, we're going to do everything in our power to pay the dividends. We understand the seriousness of this instrument, we understand the scale, we understand what this can become. And that is paramount in how we're thinking about our balance sheet and how we're delivering this product to the market. So I mean, we've publicly stated before strategy did that we would be willing to sell Bitcoin in order to pay the dividends. And I think it's helpful to think about the capital structure, right? So we've got significant Bitcoin reserves held on our balance sheet. I think as of today, something like 18 years. We just announced a new Bitcoin purchase right now as of Today, we've got 15,390 Bitcoin on our balance sheet. We have $524 million of notional perpetual preferred outstanding. Okay? So our annual interest obligation is $68 million. Okay. We have 12 months of cash and six months of strc to pay the dividends already on our balance sheet. So that's like, you could think of it as like first line of defense before the bitcoin comes into play. And we're constantly in the process of raising additional capital, whether that be on equity, whether that be on perpetual preferred equity. And understanding our balance sheet. We're monitoring our balance sheet every single day. We've got very advanced analytics behind the scenes. We're leveraging the best AI tools to understand what our balance sheet looks like. And I think it's helpful to think about the risk profile of downside and we're thinking about our ability to pay that dividend into perpetuity. So we look at a few things. One, we're underwriting the structural long term trajectory of bitcoin. Okay, One way to look at the structural long term trajectory of Bitcoin is to look at the 200 week moving average. The 200 week moving average, which is a four year average, effectively thinking about bitcoin halving cycles, I think that's a pretty good proxy for looking at structural bid. Every single return period in Bitcoin's 200 week moving average is positive. There's never been a negative day on the 200 week moving average. Say it couldn't happen, but there's never been one. The 200 week moving average itself is compounding at 30% across every single return period that you look like you look at. So the, the 200 week moving average itself is compounding at 30%. Now, looking at price history relative to the 200 week moving average is also pretty illuminating. So you can look at how many days in bitcoin's history has bitcoin traded below the 200 week moving average and how deep below the 200 week moving average did it go? Now, back in 2022, there was a period of time, there were about 60 days where Bitcoin closed below the 200 week moving average. The lowest that it closed below the 200 week moving average is around 30% and so below third at 30% below the 200 week moving average. What would our balance sheet look like today? And I wanted to post that to you as like, let's look at downside. Let's see what the balance sheet would look like. Now at. So thinking about our notional outstanding, 524 million notional outstanding, we've got $68 million annual interest obligation. So at a price at a bitcoin price of 44,260, which is 27.5% below the 200 week moving average. We would have 10 years of dividend coverage in the bitcoin already on our balance sheet. Okay, that's, that's forget the cash, forget the strc. So you think, okay, well that's, that seems pretty strong. What does that look like relative to other credit instruments in the entire market? Do other companies that are issuing debt or issuing debt capital in a very volatile period like that, do they have 10 years worth of dividend coverage already on the balance sheet? I don't know. That's an interesting question. I think it's good to compare the relativity there. Now there's also, there's two components. When you think about downside risk and like structural bid, you're looking at depth and duration. So how long did it stay below the 200 week moving average? And historically the, the longest that bitcoin was below its 200 week moving average was 35 days. Okay, so that's, that's interesting. So it's rebounded relatively quickly. Okay, what's the structural difference between 2022, when that happened and today? It's like, well before the Bitcoin etf, that was before digital credit was an instrument. That was before there was regulatory clarity of being a bitcoin being incorporated into the United States, having a strategic bitcoin reserve that was ftx, Celsius blockfly contagion, interest rates going up at a faster rate than we've seen in history, in our lifetimes. And you think about that event and underwriting that event, like I can underwrite that. I could throw a probabilistic, you know, curve on top of that and you start to think about the relative risk profile. And that, that looks pretty interesting. I think that's a compelling, a compelling story and I think that would be a healthy perspective to take is what does this look like in a very bear scenario? What is what? As a credit investor, you are underwriting the balance sheet, right? You're underwriting the balance sheet of us and our, our transparency of that balance sheet. The great thing about this, we're filing 8Ks very frequently with the SEC, the regulator. Everybody knows what our balance sheet looks like. We're not rehypothecated. It's very clear, it's very simple. You compare that to dollars that you post in or that you, that you store in a bank, you have no idea how much is rehypothecated. You have no idea what's going on with that. So it's a, I think That's a helpful way to kind of start to look at the difference between the two.
- [12:22]
A
Hey, bankless nation. A quick pause in the conversation with Jeff. Don't worry, I'll get you right back there. Because we still haven't gotten to the part where companies like Strive and products like SATA turn into the tail that wags the dog of the bitcoin market cap. But first I want to tell you about OkX. It's one of crypto's biggest exchanges and it's now available in the United States. And with that, they're introducing the new Money app. Basically, it's just one universal place to trade, use a dex or manage self custody. And it's all built for people who are brand new to crypto crypto, but also for advanced traders who want the real tools and deep liquidity that OkX can offer. OkX has over 170 crypto assets listed and they keep shipping pretty useful tools for its users like trading bots, where you can automate strategies like grid trading and DCA or arbitrage so your strategy can keep on running even when you're not staring at a screen. So if you haven't tried okx yet, now is the perfect time. New users who deposit and make their first trade through the bankless link can earn up to 500 in Bitcoin. So check out OKX. There's a link in the show Notes. It's the new Money app. It's an exchange, it's a dex, it's a self custodial wallet. It's and, but it's all in one place. Check out the link in the show Notes. And now let's get back to Jeff. The way I understand these products is that it is, it's just a hedge against your job as the risk manager is to just make sure you don't blow up from long tail risks from, from, from black swans. I can take the argument that, you know the, the FTX three hours capital Terra Luna high interest rate event in crypto. It wasn't one event. It spanned over like six, six months. Was an, you know, an extreme outlier event. You know, how did, how did we get here? Decades of ZIRP followed by helicopter money into Covid with a new, a new phenomenon. Everyone is at home. There was crypto, everyone was learning crypto. And so the crypto bubble was, was massive. And then we had this like idiosyncratic event with the interest rates. I can take that argument. One thing about that that I'll, that I'll flag is that it is retroactive. And I guess that's just how insurance works. Like you, you, you, you can't predict the future inherently. And so there, there's only some amount of assurances that you can have, but that's just how insurance works. The, the thing that flags more in my mind though is that say you do your job perfectly and everyone like looks at your analysis, looks at your balance sheet. And like, you know what, I trust Jeff, Jeff's, Jeff's doing great. I'm going to buy more of his financial product. I'm going to buy more Seda. And what that does is that actually increases the obligations that you have as a company to pay those dividends. And so there's something about the success of the product, be it Michael, Michael Saylor's stretch or your SEDA product, the success of the product is the long tail risk because as you do your job better, your obligations increase. And so there's something that makes me nervous about that where there's something tied to the success that feeds back into the potential demise. Not demise, but just like failure to meet the obligations of the payments. How would you respond to that?
- [15:29]
B
Yeah, I think, look, you're underwriting the long term trajectory of this. Every single dollar. You sell one share of Seda, right? $100 comes in the door within an hour. I've purchased Bitcoin and I'm putting into cold storage. Boom. So I've got Bitcoin on the balance sheet. You bring in a hundred dollars and we've got a process and how much we deploy, but I've got Bitcoin on my balance sheet within an hour. Okay? So then I've got Bitcoin on my balance sheet and I'm carving off excess risk return, right? So I'm saying I will give you the 13% on that hundred dollars, right. Over time. So I'll give you $13 per share. Think about that. It's $13 per share. Now, that $13 per share stays flat over time. Okay? Now the bitcoin that I have on my balance sheet is compounding over time. So I don't need it to go up 13% compound annually in order to pay the dividends on that specific share that I sold. Right? We've got a long term. If bitcoin goes up, I think it's about 5.7% as of today, then we could pay our dividends in perpetuity. That's a function of the underlying balance sheet. That's a function of the compounding and the way that the math Works. You think about M2, money supply has increased at 6.7% compounded annually. So we've got delta in and above the money supply growth. So if the money supply just continues increasing, we've got buffer within, within that. And ultimately it's, it's the success of this product is putting more Bitcoin on our underlying balance sheet, right? So the equity cushion theoretically rises as well. That does, that does a few things. So within the common equity, right, we've got two products, we've got our digital credit instruments, SATA, we've got our common equity asst. Now with the common equity, what is it worth? Like, how do you value it? Right? You have to value that vehicle relative to everything else in the market. And the market's doing that 24, 7, 365, right? Like it's constantly rebalancing and understanding and trying to figure out what the value of that equity vehicle is. Now, if you're long term structurally bullish on bitcoin, a healthfully leveraged bitcoin exposure seems interesting, right? And we've seen it. And the volumes are increasing. So as, as that underlying bitcoin goes on to the balance sheet, the equity has more potency, I would say you could think of it that way. It's like more potent. And when it's more potent, that means there are more people that are buying calls, there are more people that are buying puts. The equity itself is moving and the volume of the equity is rising. We've seen it over time. You can go look at the data. As our bitcoin balance sheet has grown, our average volume on the underlying equity is also growing. So we're seeing more dollars traded because it's a more interesting instrument and it's a pure expression of, you know, this amplified bitcoin exposure. So the market, and we've been told by the market that the market is using these equity instruments like MSTR and like our common stock to hedge bitcoin exposure. So that there's, there's been, there's multiple reasons. People are buying and selling the common stock. That creates volume, that creates dislocation, that creates opportunity for us to raise additional capital or hold off. And so there's, by having two of these instruments, we're kind of constantly monitoring the underlying balance sheet, how the equity is moving, how the digital credit is moving. And ultimately, again, we need the health of both of these instruments to continue into perpetuity. So we are constantly monitoring all of them every single day. And it's paramount in how this, how this structure operates.
- [19:18]
A
Does the volume of the common turn into revenue for the company? Like why is the high volume? You said you kind of were doing some rebalancing. You didn't use the words market making, but that's kind of how it seemed is like, you know, the stock goes up, stock goes down, you adjust accordingly and you make money based off of that.
- [19:40]
B
We have the ability to issue new shares into the market. So we've got an ATM at the money at the market equity offering on both of the instruments, right? So when there's interest in the credit as it's trading at a hundred dollars, we can issue new shares. And I personally kind of think of that as revenue, right? Every time you issue a new share, you've sold a product, right? I sold $100, I sold a $100 product, so I kind of viewed that as revenue. And then we're taking risk on that product over time. And then the common stock is an ability to scale and build capital as well. Many companies do this, this isn't crazy, this isn't new, this isn't novel, right? Any development company, any real estate development company, insurance companies, tech companies, Apple, Berkshire Hathaway, they've all issued equity in the past to raise capital. It's common, it's what the market's for, it's what the public market is for. It's scaling capital. And you think about the relativity, right? And this works because bitcoin is a closed system. You got 21 million bitcoin. We're shoving energy into bitcoin and we're continuously shoving energy into bitcoin and we were witnessing everybody else shove energy into bitcoin. So again, we're underwriting that long term trajectory that bitcoin is going to survive and it is going to be able to hold the capacity of everybody that's shoving energy into it. And so as the equity moves and changes, our equity cushion relative to our credit changes and we are thinking about the credit quality and able to raise capital opportunistically to preserve that vehicle going forward, ultimately, again, we want to retain that incredibly high credit quality and the trust within the market.
- [21:21]
A
The thing I'm confused about, and if you consider your common equity as a potential source of revenue for the company, and it seems like Saylor does this too with, with strategy when, when the M nav goes anywhere above one, what do you do? You, you, you hit the atm, you pocket the cash, you buy, you buy more bitcoin. So then why would I as a investor buy the common when I can just buy Bitcoin instead. The I, I saw a tweet from Nick Carter, something to the effect of like, Michael, Michael Saylor just doesn't care about mstr. He cares about buying Bitcoin. And so he puts the value of MSTR behind how much Bitcoin MSTR actually holds. Why would, why would anyone buy the common if you're all just going to hammer it for revenue?
- [22:10]
B
Yeah, I disagree fundamentally with that, that approach and that perspective. I wouldn't say it's hammering it for revenue. I think it's opportunistically identifying, identifying ways to scale the balance sheet. Think about like MSTR, okay, what five years ago had $500 million of capital, they now have $60 billion of capital. Okay. If you're, if you're going to sell institutional grade credit, you need a, you need a large balance sheet and that's why they've had the ability to go sell. There's a lot of digital credit. I think the strategy has shifted a little bit, right. So they've been able to scale the balance sheet. Okay, now I've scaled the balance sheet, now I can go sell credit against it. I think if you're interested in any of these equities, you have to take a long term view of what does this look like 10 years from now, right? If you were buying apple in the 90s and they sold shares and you're like, I don't want to hold Apple anymore because they're selling shares to raise capital. It's like, well, they're going to go build products, they're going to go build a balance sheet to go do things with it.
- [23:21]
A
I get that point. But there's something fundamentally different about Apple who is, you know, investing in factories to make phones versus something that is a Treasury company which is using the common to finance bitcoin purchases. And sometimes like Apple will say like, I have enough factories, like I've done my investment, let me return value to shareholders. There doesn't seem to be, again, from my perspective, there doesn't seem to be a return value to shareholders. Part of the DNA of strategy.
- [23:55]
B
Every single, every single bitcoin that they buy from the digital credit instruments that are sold is increasing the bitcoin exposure, the potency of the underlying equity.
- [24:04]
A
Right?
- [24:04]
B
So, so if you, if you go look back at like the 1x M Nav bears, right? Like go look at 1x M Nav, the value of the balance, the value of the share at 1x and you go look at that over time, it's going up and to the right.
- [24:18]
A
Is this the same thing as saying that there's more bitcoin per share, there's
- [24:22]
B
more bitcoin per share, but the floor, the floor, like fair value. If you thought fair value was 1x m, now the floor price is rising
- [24:33]
A
because there is more bitcoin per share,
- [24:36]
B
because there's more bitcoin exposure per share. Right. It's like a potency of the underlying instrument. So I think it's helpful to look at.
- [24:44]
A
Is there something different than saying there's more bitcoin versus per share versus bitcoin exposure per share, or are those synonymous?
- [24:51]
B
You added the word exposure.
- [24:52]
A
I want to know if there's a nuance there I should understand.
- [24:54]
B
Bitcoin exposure per share. I don't know.
- [24:57]
A
Bitcoin per share is the same thing.
- [24:58]
B
Bitcoin per share, yeah. Bitcoin per share, I mean. Okay, Bitcoin per share, yeah. Bitcoin exposure, it's more potent. What I'm getting at is the underlying value, like the floor is going up and to the right. And that's kind of how I view the common equity. There are going to be periods where it's incredibly volatile. Right. These instruments have beta on top of Bitcoin. So if bitcoin goes up, MSTR goes up 1.5, our common goes up 1.7. Vice versa, if bitcoin goes down, MSTR goes down 1.5, our common goes down 1.7. That's like the. The relative mathematics. It's an amplified exposure that's got different. There's going to be different periods of time that it's got different exposure characteristics. Again, you're buying the equity of a company. You're not buying bitcoin. If you want to be fully sovereign and go buy Bitcoin, go buy bitcoin. I love that I have bitcoin. I love bitcoin. I want people to have bitcoin exposure. The thing is, David, the difference between the Apple comparison and this MSDR comparison, what is the total addressable market for a digital credit product?
- [26:09]
A
Something directionally towards something fundamental to finance.
- [26:13]
B
Like hundreds of trillions of dollars.
- [26:16]
A
Yeah.
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B
Okay. If every person on the planet had an iPhone, what's the total addressable market of iPhones? Like $8 trillion.
- [26:25]
A
Yeah.
- [26:26]
B
Okay. So the total addressable market of this product is absolutely astronomical. It's huge. Right. These instruments. So I think it might be helpful to talk about our instrument for a moment. Sure. So we just announced that we're going live with daily dividends on June 16th. Right. And so we're going to be paying a dividend every single day to holders of record the prior day. Okay, and what is, what is the, what does that disrupt in our opinions? It disrupts the credit market. You go look at the credit profiles, go look at private credit, type in private credit to Google. And look at all of the people trying to leave private credit because they don't understand what's going on. Right? They don't know what's in there. They don't know what they own. It's illiquid. I don't want to touch it. It's stuck in pensions, it's stuck in insurance companies. It's shoved everywhere because the demand for this, the credit, the demand for credit is ballooned. It's astronomical because the population has gotten older. So as people have gotten older, they've shifted their portfolios to be more credit heavy, pension funds have more exposure, insurance companies, et cetera. So the demand for credit has ballooned. That caused the cost of credit to come down. And I think the relative risk profile to the return on credit on fiat credit instruments got completely dislocated. So you are looking at the relative risk profile of a digital credit instrument of assets that are already on a balance sheet relative to future cash flows. And I think there's a significant dislocation. Right? We're seeing what's happened with AI. AI, when you're underwriting traditional credit, you underwrite cash flows, okay? And when you're underwriting cash flows, there's an umbrella of probability of what you think those cash flows are going to be. And with the development of AI, that probability umbrella explodes. There are some companies that are going to knock it out of the park. There are some companies that are going to get completely destroyed. And that uncertainty should change what the credit trades at. And now a lot of the credit in the entire credit market is completely illiquid. It's 144A. You don't have the ability to buy, sell and trade it. Nobody wants to buy your Ford 2070 bond from you. It's illiquid. Nobody wants to buy it, nobody wants to touch it. Now you look at these alternative instruments. These are credit instruments. I'm holding it for cash flow, I'm holding it for yield, yet I don't have a principal repayment. That's true. This is in hybrid equity instrument. But what's the purpose of holding it? Is the purpose of holding it for the yield and the payment over time, or is the purpose of the instrument holding it for the principal repayment at the End of a period, right. And, and you start to think about, you have to, you have to put these things on the same playing field. You have to compare the credit instruments in the credit market and you got to go look at the risk profile of those and you got to go compare the credit, this credit. Like how do you, how do you put them together? And from my analysis, having the assets on the balance sheet, thinking about underwriting the long term trajectory of an asset, that is a significantly more compelling risk return profile than any, any other traditional credit. And then liquidity. Let's talk about liquidity for a moment. These instruments are incredibly liquid. The JP Morgan Perpetual Preferred Instrument trades $2 million a day. They've got 5 billion of notional outstanding and it's trading $2 million a day. If you had $100 million and you wanted to scale out of that product, you're going to destroy the price. You can't do it. You have to hold that instrument for 20 years in order to, in order to get that, get that return back. So then you go look at the Strategy instrument or our instrument and you look at the liquidity profile. And I mean our instruments averaging $40 million of liquidity a day on 500 million, that's significantly more liquid relative to the JP Morgan instrument. And Strategy's instrument is trading hundreds of millions of dollars a day relative to I think about $10 billion outstanding. Now that's, that, that's, that's what provides the principal protection of the instrument is the liquidity profile. It's the incentive structure, right, that these instruments, because they're liquid, because they're transparent, invites computers to come and trade these and invites market makers to move in both directions. People that are buying calls, buying, selling, puts the whole thing. The incentive structure is bringing liquidity there. So okay, zooming back out, that's the credit market. These disrupt the credit market. These also disrupt the equity market. Any dividend paying equities, how much volatility do you take on for a dividend paying equity? Any, any dividend paying equity. What's that probability umbrella look like of the value of the company over time? You look back over time, in the last 20 years, there's been a 50% turnover in the S&P 500. What if that happens again? It's probably going to happen faster with exponential increase in technology. Okay. If half of those companies in the S&P 500, you don't even know the names of them. If you buy the S&P 500, you're buying those companies. You don't even know the name of. And you're getting paid a dividend on them. It's like, what's the value of that? And how much volatility do you take on for that value? Storage. And so, all right, we're talking about potentially disrupting the equity market, not necessarily the growth equity market. I think that's a different bucket. Okay, so you're disrupting credit, you're disrupting the equity market, you're disrupting real estate. How much risk profile do you take on for a digital credit instrument relative to real estate? And I was talking with my aunt and uncle. My aunt, uncle sold multiple pieces of real estate in suburban Wisconsin. And the reason they did that, the prior year, they had a hailstorm, ruined one of the roofs. Insurance came back. The cost of Insurance went up 100%. Their tenant moved out. They got to mow all the lawns. They've got all of this damage that they got to figure out there's just so much risk associated with a piece of real estate and, like, headspace. So what's the value of the headspace? What's the cost? What's the return relative to the risk in the headspace they have to take on? And they were. They were looking at something like 6.6percent cash on cash return. And now you again, compare that to something that's paying 13%, and I just hold it in an equity, and it's just sitting in my brokerage account. I've got no headache, and it's just continuously paying me. I'm looking at the risk profile, and I'm like, okay, if the price of Bitcoin drops significantly from here, like, I'm still getting paid. I'm senior. I've got significant position coverage on the balance sheet that's. That's compelling. Okay, so credit market, equity market, real estate market, and then the money market last is the money market. Like, you guys are called bankless, right? You're not called brokerageless or trustless. You're called bankless. Okay, so let's look at bank deposits. Bank deposits. You put your money in a bank, right? And what do you get for it? Not really anything.
- [33:27]
A
Not much.
- [33:28]
B
You don't get anything for it. Okay, and what, like, what is protecting your bank deposits while the bank's balance sheet is protecting your bank deposits? Have you ever looked at a bank balance sheet? Maybe you have.
- [33:43]
A
No, not anytime recently.
- [33:45]
B
No, you haven't. You don't know. The. Look at the liabilities relative to the assets that banks are holding. Banks are 90% leveraged. And they're rehypothecated and you don't know what the rehypothecation looks like. And so what's backstopping the liquidity of your dollars at the bank is it's the bank's balance sheet, which is thin. And then aside from that, it's the FDIC. Well, the FDIC is 70x leverage over on deposits. So what's the reality of storing money at a bank? The reality of storing money at a bank is that you're going to get it inflated away. You are paying risk premium to the FDIC via inflation. You are losing money. So you go store money in a bank. You are losing money because you're paying risk premium via inflation. That's it. Now again, so I bring this up because you think about like how society is constructed, how civilization is constructed. Trust is the oldest technology on the planet. It is like why civilization exists. It's like why societies exist. The reason you guys created bankless is because the trust in banks is getting eroded. I agree with it. I love the ethos. It's fantastic. Now we're reestablishing trust networks. We are creating better trust networks based on bolstered balance sheets that are with the hardest money on the planet. And they're transparent. Right. I want to show you, I want to file an 8K and show you what our balance sheet looks like. I want you to look at my website and look at the strength of my balance sheet. I want you to look at the liquidity profile of my instrument and think of liquidity as your principal protection. Right? Like that's, that's what we're creating. We're reestablishing trust networks built on better money. And so these instruments, they can tackle all of, they, they can disrupt all of the capital market. It's, it's money, it's credit, it's equities, it's real estate. And then bitcoin carries the rest. Right? Bitcoin's competing with gold and, and money and equities and growth equities, et cetera. So that's, that's how I view these things in this space. I think that the TAM is absolutely enormous and the risk profile is misunderstood. And we're being incredibly transparent with the risk profile and the trust instrument.
- [36:09]
A
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- [38:51]
B
Yeah. I mean, we're making trust cheaper. Right. Like how? Like if you were to go analyze and trust a bank, how would you do it? Right. Can you go on JP Morgan's website and go look at their assets? Yeah. No.
- [39:10]
A
I would ask Claude to review his quarterly earnings, which would then be one quarter out of date, right? Yeah.
- [39:18]
B
Right. So you could see how our assets move every day. You could go price it. You could go set up algorithms that are trading it. You could go set up your own AI trading between any of the instruments in the market. You could go create. You could go. You could go create different models that are looking at alternative credit markets and identifying carry trades and different opportunities, just like typical corporate finance has done throughout history. Yeah. I would say we're making trust cheaper and more legible. Right. It's easier to access and it's easier to read and see. It's not opaque. It's incredibly transparent. I've said multiple times, it's really simple when you boil it down, and that's by design. It's elegant. It's very elegant. It's very simple. And the simplicity almost confuses people.
- [40:13]
A
Yeah. Yeah.
- [40:15]
B
You know, one thing I've noticed is
- [40:16]
A
people have a really hard time wrapping their head around strategy and Stretch and SATA and. And all of these things. It just. It circuit breaks. People's ability to reason about it.
- [40:27]
B
Yes. Yeah, absolutely. I think one way to think about it is. And I've posed this to people as well, it's like, I think of each one of these, Each one of these instruments that is sold is. Is performing labor. Right. So, but what is the labor? The labor is digital labor. It's risk taking. Okay, So I sell a share for $100, and I'm paying you $13 into perpetuity, right. Well, so then at that point, it, it would take. If I just took that $100 and paid you $13 back, you know, back to you, and I didn't park it anywhere else. I just held it in cash, I would give you all your money back by like year seven.
- [41:07]
A
Mm.
- [41:08]
B
Okay, now what if you deployed that excess into an asset that's moving positively right? Okay. Like that. It's as simple as that. It's like the risk taking of that analysis. And you like bitcoin, right? You guys like bitcoin? You like Ethereum? If I gave you one bitcoin today at let's just say $80,000, would you be willing to pay me $9,000 a year for the rest of your life?
- [41:39]
A
Wait, if you give me one bitcoin a day at $80,000, I have to pay you $9,000 for the rest of your life? Oh, God. It feels like, it feels a burden of an obligation. But I also don't have the same tools that the rest of the company has to risk management and account for these things.
- [42:00]
B
You do though, because, you know, the analysis is super cheap. Like you can go run the analysis in Claude like you ment in 10 minutes. Right?
- [42:08]
A
Yeah, but the different, the difference with that, I understand the point, but the difference with that is that in order for me to pay you back $9,000 for the rest of your life, I have to actually sell the bitcoin.
- [42:16]
B
And not necessarily, not necessarily you can do anything to pay me $9,000.
- [42:20]
A
I can do anything.
- [42:21]
B
You can do anything to pay me $9,000. Right. Just like we could do anything to pay you the 68 million.
- [42:26]
A
Right?
- [42:26]
B
Right. You could go sell covered calls on the bitcoin if you wanted.
- [42:30]
A
Right? Right.
- [42:33]
B
You could go work.
- [42:34]
A
I could go, you could work record more podcasts.
- [42:38]
B
You can go work. You could go do other things. You can.
- [42:42]
A
Yeah, I, I probably would take that deal.
- [42:44]
B
Yeah, it's, it's a compelling deal. Right. Okay, now you, you can't do that. You can't do that. It's, it's not a, it's not a trade that can exist like person to person.
- [42:56]
A
Right. You have to, it has to be you.
- [42:58]
B
You need a corporation. Yeah, right. And a corporation is trust. Right. Like, how did, how did civilization move from 150 person tribes into what we have today? It's, we created extension of trust in corporations and law, in rules and money and society. Like.
- [43:16]
A
Yeah.
- [43:17]
B
Right. So again, your, your podcast isn't called Trustless.
- [43:22]
A
My Twitter handle is.
- [43:24]
B
Is it really? No. Is it Called trustless.
- [43:27]
A
Trustless state.
- [43:27]
B
Yeah, well, I mean like you're not going to rewire 200,000 years of genetic disposition, right? Trust is going to exist and like the reality is a lot of people aren't going to be able to handle a 50 volume asset that's moving at 40% compound annual growth rate. It's just, it's the reality, right? Everybody's felt it. You go tell all your friends and family about Bitcoin. At all time highs, they go buy bitcoin. At all time highs, they go sell it. At the bottom, they hate you, you never talk to them again, right? Boom. Awful value proposition. And you think about the digital credit instruments, a much easier value proposition when talking to like your family and people that you trust, right? You know, I'm talking to like my family, my family's in, I'm talking to them about this, the risk profile of these instruments and they, they can feel comfor with it. They're not underwriting bitcoin, they're allowing us to underwrite bitcoin and they're underwriting us. And our ability to underwrite bitcoin and manage a balance sheet and keep good credit quality into the future. This is the biggest idea in all of finance. I mean the scale of these things is moving incredibly fast. The total addressable market is the biggest on the planet. This is going to eat the lunch of crypto number four through 5,000, these instruments, right? Like you think about money going into the crypto ecosystem, it's difficult to move money into the crypto ecosystem. It's like what? Like what? Like I gotta buy this thing that I don't know what it is, I gotta trust these people. You know, it's, it's difficult to do. And a lot of, a lot of the population has a brokerage account. A lot of the population has a savings account. If you're talking about accessing a brokerage account or savings account, okay, that's a lot, that's a lot easier. Lower friction in order to bring capital in the door. This is going to exist on bitcoin, right? We've got digital credit, it is going to expand, it is going to continue to grow. As the track record improves, the interest in these products is going to expand. I don't think that any other crypto asset is going to be able to issue credit against it at scale. And I think that's a bearish position for most other cryptos. Maybe Ethereum, Ethereum, maybe Solana, like lower, lower probability. And if you're talking about a asset going from $1.6 trillion to 20 trillion or 30 trillion, you need to access different pools of capital, large institutional scale, like different pools of capital that are not going to buy the underlying, but they're going to buy a wrapped product. With Bitcoin, you're underwriting the protocol. And so Bitcoin, $1.6 trillion asset. With Ethereum, you would be underwriting, what is it, a $500 billion asset. So it's a significantly smaller asset, it's like one third the size. And you're underwriting the Ethereum foundation and their ability to change the protocol and proof of stake and the credit profile. Any credit written against Ethereum would likely need to have a premium over and above the credit that's issued on Bitcoin. Not to say it's not doable, it's just, it would have to be better, it would have to be a better product than the credit written against Bitcoin.
- [46:53]
A
Because you're saying that there is more trust required.
- [46:56]
B
I'm saying that the company that's issuing the product has to underwrite, underwrite that future.
- [47:03]
A
Right.
- [47:04]
B
That risk profile is different than the risk profile of Bitcoin.
- [47:09]
A
So isn't that just like a risk return function where, like, Bitcoin has a bigger brand, it has more liquidity and if you do this for, you know, Ethereum, smaller market cap, less liquid, there are some perks to Ethereum, like the staking I actually think could meaningfully change what the product looks like to Ethereum's benefit. But nonetheless, you know, Ethereum's got more competition. Not only does it want to compete with Bitcoin, but it also has to compete with Solana. And so what you're saying is just like the risk profile is different, which is, you know, emblematic by the fact that its market cap is, is one third. And so that's basically what you're saying.
- [47:46]
B
Yeah, yeah. And with credit, you've got to underwrite the duration too. So the duration gets a bit trickier with something with an un. A little bit more of an uncertain supply as well. Sure. So it's a bit easier to underwrite something with a known supply distribution, a known supply curve, a known infrastructure, and how it's interfacing with society. And that's. If a corporation were to issue credit against Ethereum, I think it could happen. I'm not going to say it won't. I think it could happen. They're just going to need to pay a higher rate than we are and we're already paying a 13% cost. Of capital. And think about, think about the conversations that are going to happen if you go higher than that. Right. It's not to say it couldn't work, but I think the risk profile does change.
- [48:37]
A
Yeah, yeah, yeah. I think a lot of this conversation about the viability, long term viability of product, products like Stretch and SATA really depend on where you think you are. Where we think we are as investors on Bitcoin's S curve of adoption. If, if we think that we are in the later stages of Bitcoin's S curve of adoption and Bitcoin appreciation is kind of just approaching fair market value and inflation rate appreciation. But then companies like Strategy or, or assets like seda, they issue more and more assets as if Bitcoin is earlier on the S curve of adoption, then, then we're in trouble because you're baking in or assuming a level of growth that Bitcoin doesn't have because we're actually later on the S curve than we think we are, or the inverse, which would be far more bullish, which is you do some amount of risk management, you only issue so much stretcher data and actually Bitcoin's appreciation is actually largely ahead of us. Bitcoin is going to flip gold. It's going to become the number one asset in the world and all of a sudden the risk profile looks very, very safe. What gives you the confidence that we aren't further along in Bitcoin's S curve than we actually are?
- [49:52]
B
David, the credit market is $300 trillion. If, if digital credit made up 0.5% of that, it would double Bitcoin's market cap today.
- [50:07]
A
0.5% assurance that Bitcoin can, that can access all of that. Tam,
- [50:15]
B
the credit market is wildly dislocated from a risk return profile. In my opinion, the disruption from AI is going to absolutely disrupt 25 to 50% of the existing credit market. I think it's going to disrupt 70% of the equity market. It's going to disrupt 80 to 90% of the private equity market. It's probably going to disrupt 90% of the private credit market. Real estate is wildly overvalued relative to its utility value. Money markets are paying you nothing. It's just like you look at the scale, like the scale of capital is absolutely astronomically enormous relative to the size of this asset and these vehicles that, that can access capital. Right. We're an asset management company. We've been around since 2022. We've launched 13 ETFs and in ETF land and institutional Capital Land. There are companies that cannot buy ETFs like a majority of companies cannot buy ETFs until they're three years old. So we're out, like in the beginning of this company's history, they were out going to sell these ETF products to the small capital managers, right? There's somebody that can, that can invest in something before it's three years old. And it's just very small pool of capital. And as soon as you hit the three year mark, it's like pension funds have a filter. Like can't buy until it's three years old. And as soon as you hit the three year mark, there's a hockey stick, hockey stick growth. And that's because institutional capital, it's like seasoned. It's gotten older. They understand the credit profile. The rating agencies are probably starting to look at it a little bit more. It's become integrated into the market. That is what this growth trajectory is on. And you think about these instruments, right? We have 18 years of Bitcoin payments on our balance sheet. We have 18 years of coverage on our balance sheet from the bitcoin. We've got a year of coverage on the balance sheet from cash and six months on strc. We're definitely going to make it to three years old. We're definitely going to make it there. So is strategy. And so what does our balance sheet look like three years from now? What does that look like? What does that risk profile look like? How does this market evolve? You can build on top of these things. And some of the most successful projects I've seen recently in defi land are instruments that are built on top of these perpetual preferred equities. You go look at Apex. I think Apex has raised, I don't know, $200 million for this digital credit defi instrument that's tapping international capital that's interested in these yield products. That's, that's fascinating. That's going to grow. The defi market on this is going to grow. And you're taking this perpetual commodity, Bitcoin, we've converted into two perpetual instruments right into digital credit and amplified Bitcoin. And you could build on top of digital credit, you could build on top of amplified Bitcoin. And we're seeing that in defi. It happens really fast. We're also going to see it in tradfi. So I've got a background in tradfi. I worked in Insurance for 11 years and I worked in structured finance. Like I literally, I've done this stuff
- [53:31]
A
Feels like the right background.
- [53:33]
B
Dude, it's perfect. The you can take this, this perpetual preferred equity instrument and you can wrap it up into something and you can splice it again, right? So you can make it now a senior perpetual preferred equity in a different capital structure and you've got a junior perpetual preferred equity. You can, you could slap a term on it and maybe make it a four year product. Now it now it's a bond and it's trading 144A. You effectively just made transparent private credit. You know what the market is for transparent private credit that's backed by another equity tranche and you go get it rated. It's enormous, right? Like if you slap a term on it and you protect it with another senior truck structure. Now it's like, okay, what's protecting this super tight tranched instrument? Well, it's like all of this bitcoin, all of this cash, all of the equity on the company and then it's protected by equity of another special purpose vehicle. It's like incredibly transparent. It would be paying 100 and 200 basis points more than any other senior potentially IG rated instrument in the market. You could go sell that, I could go sell that to insurance companies, I could go sell that to pension funds. A rating agency would be able to wrap their head around it. And David, all of this has happened so far with the global banking standards providing zero credit for bitcoin as capital on a balance sheet. Right? Zero. The S&P 500 gave strategy A B minus issuer credit rating and they valued the $60 billion of Bitcoin on their balance sheet at zero.
- [55:13]
A
Which actually seems like an opportunity because if you are as an investor don't value that at zero, you value greater than one. All of a sudden there is an edge there that alpha, somebody can take advantage of.
- [55:27]
B
Yeah, alpha is created. Yeah, you've got these legacy. That's probably the last legacy hurdle that if that changes the scale of capital that's going to come into bitcoin is absolutely astronomical right now. If a bank were to hold bitcoin on their balance sheet, it would be punitive on their capital requirements for the, for the bank. So it doesn't make sense to hold insurance companies same thing. They can't hold it like they get zero ability to leverage against it. So like why would you hold it? I'll just, I will hold MSTR instead. I will hold.
- [56:00]
A
This is what makes companies like yours True north and strategy actually disruptive is because you are doing the thing that no one else can or would otherwise do just because the, the bureaucracy, it hasn't supported it yet.
- [56:14]
B
We are transforming the asset, we are the transformers to, to purify the asset into different forms.
- [56:22]
A
Right. So when I was asking about like, okay, Jeff, why do you think that we are actually on the earlier stages of the S curve of adoption? To give you the confidence to issue more data. I think your answer is the S curve of adoption. We are making the S curve of adoption. We will actually shape the curve and make us earlier on the S curve of adoption by doing the thing that we're doing which is disrupting all of the markets that you said that you have disrupted, correct?
- [56:50]
B
That's correct. Yeah. I think we're still very early on the S curve, but it's becoming less early every single day. The capital that's coming into these instruments is very large. The total addressable market is very large. The innovation that could be built on top of it, we don't know what it exists yet. Right. This is new. We are the first company in capital markets history to pay a daily dividend. How does that change how the capital markets move? How does that change how the credit markets trade? It will change it. We just don't know what it looks like yet. It will change the fabric of how humanity interfaces with capital and money.
- [57:34]
A
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- [60:13]
B
Yeah, yeah, there's some co optician. Right. It's competitive but cooperative at the same time.
- [60:19]
A
You grow the pie. Yeah.
- [60:22]
B
Any bitcoin that we're buying helps increase the floor value of the strategy balance sheet and vice versa. And so if we want to go to rating agencies, boom. You could go to rating agencies. There's two issuers instead of one. If there's just one, you're like, you're crazy. If there's two, it's like, okay, well now you're both a little crazy. But I need to take you seriously because now there's two of you. If you're thinking about creating a product on top of this, go to Defi Land. Right. The Defi Land products are using both of these instruments. Why? Because you now have diversification and different yields, you have different risk return profiles. Okay. Now that increases the TAM that you're access in that market. It can this grow? Absolutely. It is certainly helpful. I think from a decision making perspective. We're also underwriting strategy's relative position in the market. That's part of our long term structural Bitcoin thesis is strategy's existence, its risk profile, its security. The instruments that they're issuing, we are underwriting all of that. They're also probably looking at us and our existence helps them underwrite the bitcoin as well. They've got to do something with these convertible bonds in the balance sheet. And I think now that we're in the market and we're operating within the marketplace, I think that gives them a little bit more comfortability to make a decision to do something with convertible bonds today than doing something in the future. And waiting a little bit further, I think there's so much optionality that increases by having multiple issuers in the market. There's going to be more too, I would suspect. And you can take different structures. Our capital structure is different. We have one perpetual preferred equity and that's it. And it's senior. We have SATA and they have strf, that's senior. Then they've got convertible bonds, they've got STRF, which is senior than strc. Then they got strc, strk, sdr, E, S, T, R, D. So they've got a whole completely different capital structure. That, that change, that changes the math. Like there is math behind the scenes. Me and my team have probably built some of the most complex math. If I tried to share would be like, I don't want to say too much, right? Yeah, it'd be too much. But like the, the mathematical risk profile, like you can actually look at points along a probabilistic curve. We view the world in a stochastic way. There's a stochastic just means like probabilistic.
- [62:49]
A
Yeah, right.
- [62:50]
B
And so there's, there's a probabilistic difference between the credit profile of STRC and the credit profile of SATA. As computers get better, as people, their brains shift from flesh brains to computers that are on, you know, true computers. The, the calculus becomes more automated. Like the, the trading between credit instruments is going to get more automated. It's going to be more computer focused as opposed to like the traditional 144A back alley deals that are trading off market.
- [63:23]
A
All right, Jeff, so say I'm convinced. Say you've convinced me.
- [63:28]
B
One, I did my job.
- [63:32]
A
This is hypothetical. One thing after we did the episode with Saylor, one thing I was thinking of is like, okay, it sounds pretty compelling, maybe I'll buy some stretch. But the reason why I didn't is that because I don't want to be Michael's. I don't want to be cucked by Michael. Like, he's going to be offering me 11%, but that's because he thinks that he can get 30%. You know, I'm, I'm no weenie. I like risk, I like volatility. Like, I'm into that. Like, I don't need the stability, I don't need the cradling of Michael Saylor to protect my portfolio. Stability. Like, I, I want the upside. So I'm not going to buy Stretch because I don't want him to, to deliver beast abilities. Reap all the rewards. Yeah, exactly. And so, like I'll just go buy Bitcoin instead. Like, if he's going to do this, I mean, the way that I'm going to get exposure to the upside here is just by buying the same asset he's buying or you're buying. How would you respond or reflect to that?
- [64:30]
B
You're a young guy, you're probably around the same age as I am. So I think very similarly to the way that you do. However, I have STRC exposure in my HSA and I love it. Why? Because my HSA is my health savings account, which is tax advantage, and I want to use it. If I go to the doctor, my wife goes to the doctor, or I want to go get a massage or chiropractic or whatever, I know that the dollars are in there and they're not 50 Vol. It's just paying me, right? And I get paid. I don't even know the numbers, but I don't know, a couple hundred dollars a month. And it's like, okay, if I don't have any health expenses, I just roll it back in and it's sitting there and it's relatively stable and I know that it's paying me and I've got access to use it if I ever need it. And I could sell the instrument if I, if I needed to. So I've got it there. Compounding, I've got exposure to Bitcoin and MSTR in there as well. But it's like it's my, it's, it's a different capital vehicle for me. I've got several different capital vehicles. I got like my brokerage account and 401k or IRA and 401k. And I, I, I operate them all just like slightly differently for different tax perspectives. And like you at the moment, I am high volume. I'm in the peak of my working career and I am just going to go like, absolutely balls to the wall, high Volatility and I can wait it out.
- [66:00]
A
Right?
- [66:00]
B
But that being said, I do need some low volatility stuff in my life. And that is low volume pockets. Yeah, like little low volume pockets. And so as you, as you, I mean, this is typical, like capital management by age profile. Like as you age, your tolerance for risk changes, right? If you've got kids or you're closer to retirement or whatever that may be, you may be shifting that, that relative weighting. And now you can shift that weighting in a bitcoin ecosystem. Like if you're long bitcoin and you're like, ah, man, I'm getting older and I need some more stability. Historically you'd like go sell bitcoin for bonds. That sounds horrible. Why would I do that if I still wanted like long bitcoin exposure? If I'm bullish, the structure of bitcoin continuing to exist now, I can shift and still get that high alpha of performance in a different structure. That's interesting. There's so many, there's millions, millions, billions of people that need that. And as the structures of these things evolve, like moving to daily dividends, for example, that becomes a little bit, that becomes even more compelling. Right. The relative risk profile should theoretically become more compelling. It should be less volatile. You can hold it for a shorter period of time. You can manage risk a little bit easier. The risk provisioning, the mental framework should be a lot easier. And yeah, I think that's a very valuable perspective. There's a concept, Markowitz modern portfolio theory. I studied finance at college. And that's the. If you have a different asset with different risk return metrics in your portfolio, it should improve the return and reduce the risk of your entire portfolio. Now, now it's funny, you look at the Sharpe ratios of these instruments and they're literally on a different planet. The risk return of these instruments from a price volatility perspective or on a different planet actually improves most portfolios pretty drastically because of the low volume and high return.
- [68:12]
A
Yeah. Is another answer to that question. Well, you could just buy the common. Isn't that what we kind of said earlier?
- [68:18]
B
Yeah, yeah, you can absolutely buy the common. If you wanted high volatility bitcoin exposure, like amplified bitcoin exposure. Think about like every instrument that we sell, every share that we sell, we are chopping off the excess risk and we're chopping off the excess return. And that excess risk return is going directly to the common stock. So like we are, we are chopping off all of the volatility as humanly possible. And we're trying to strip it out into pure yield and then just amplified bitcoin exposure because we are long the underlying asset. We are long. We are long Bitcoin.
- [68:54]
A
True North. Are you guys publicly traded? Yeah.
- [68:57]
B
So Strive is publicly traded. True north owns or Strive owns True North. True north is effectively like the media branch that I started that sits underneath True North.
- [69:07]
A
Strive is strategy. Your SATA is strategy. Stretch.
- [69:13]
B
That's correct.
- [69:14]
A
Why? What, what is the. From a portfolio construction perspective, what is the difference from between Strive and Strategy? Why would I buy Strive or over Strategy or vice versa?
- [69:24]
B
The common stock or the. Or the preferred common?
- [69:26]
A
The common.
- [69:27]
B
The common. The common. Because our capital structure is different, right. We've got, we've got no debt on our balance sheet. Zero. We just announced that last week. Okay. So again, you think about like the risk profile of a, of a full equity capital structure. What is the. Like, I'm, I can't default, right? I have no event of default. I have zero debt.
- [69:49]
A
How do you pay the. But, okay, the obligations for SATA is not debt.
- [69:54]
B
No. Okay.
- [69:56]
A
Saylor and Strategy has debt because they issue convertible notes.
- [69:59]
B
They've got $8 billion of convertible debt that they're in the process of trying to retire. Right. We, we retired ours. That was a function of the similar business that we, that we acquired and that is now fully retired. We have a full equity structure. Strategy has $8 billion of convertible debt, but the debt on Strategy's balance sheet, that helped them scale the business. So they're in the process of retiring that debt. But that does change the risk profile. They do have a default probability that is greater than zero, and we don't because we have zero debt. So, so that mathematical risk profile does come into consideration. That being said, the risk profile is so small, they've got just tremendous scale over and above what we have. But you think about the Relativity Strategy's got what, 840,000 Bitcoin today? If they were to 10x their Bitcoin, they'd have 8.4 million Bitcoin. Is that possible? I don't know. Possibly. Probably not.
- [70:58]
A
I don't know if that would be good for Bitcoin. Probably Bitcoin. Bitcoin needs to be some sort of like Metcalfe network. It needs to be a network. And if, if one person owns too much of the network, it stops being good at being a network.
- [71:11]
B
So, so we've got 15,000 bitcoin, 15,300 plus bitcoin. If we were to 10x our bitcoin we'd have 150,000 bitcoin.
- [71:19]
A
That'd be good for Bitcoin. That'd be good for.
- [71:21]
B
Is that possible? I think that's. I think that's possible. So you're thinking about the scale. Like, you just have a smaller base, right? So ability to scale a smaller base. Like, our common equity looks different because our scale is smaller. We've learned from everything that strategy has done. I've probably been the lead analyst on strategy in the globe, and now here I am running the. I've learned everything. I meticulously studied every single thing that they did. Everything that they did that was good, everything that they did that was bad. And we effectively started it from a blank sheet of paper, right? Yeah.
- [71:57]
A
They experimented. He poked around, discovered stretch. And you were like, hey, Saylor, great job experimenting and learning and discovering the right product. Let me leapfrog straight there.
- [72:09]
B
I'm going to go straight there. I'm going to go, no debt. I'm going to go full perpetual preferred equity. I want the clean capital vehicle, and I want to write this into perpetuity. And so imagine like Apple, they made the computer, they made the ipod, and then they come out with the iPhone and you're like, that's it. And it's like, okay, we're Samsung and we just showed up and we're going to create the galaxy. We're not going to play around with the iPad or any of the other stuff, and we're just going to show up and come out with a really good second option.
- [72:39]
A
Do you think you can scale faster than strategy? Can you today? Right now?
- [72:46]
B
Yeah. I think the relative yield, bitcoin yield per share that I think we have an ability to scale faster because just the relative size. Right. You're talking about a small base going to a bigger base.
- [73:03]
A
Yeah. Jeff, this has been fantastic. I appreciate you coming on and educating me. Is there any other tidbit of information or any other stone that I haven't unturned that you think would be worth elevating?
- [73:15]
B
No, this is. This is great. A great conversation. These are. These instruments are fascinating. In my opinion, this is the biggest story in all of finance. It's the largest total addressable market in the world. This is how these crypto assets scale. This is how you bring capital into the market. You've got to access different capital pools, and I think the monetary network being used as a medium of exchange is continuing to scale, and I think that will grow. But if you're going to scale the capital base, you Gotta create different products for different pools of capital. And that's what we aim to do. And we've got a product in the market. We've raised $524 million so far in the last six months. And we're on the ride. And if you're interested in following me, you can find me on Twitter X. My handle is Unterjeff. Our company is Strive. You can look at Strive. Our product is SATA. SATA, that's our perpetual preferred equity. Pays 13%. It will pay daily dividends starting on June 16th. Be the first US security in history to pay daily dividends. And yeah, check it out. We've got a show called True north every Wednesday and we talk about the securitization and the development of the financial ecosystem around these. So tune into that if you're curious, want to learn more information and just stay up to date on what's happening at the cutting edge.
- [74:35]
A
We'll get all of that stuff into the show notes and into the YouTube description. Jeff, how long have you been a bitcoiner?
- [74:43]
B
Wow, man. I heard About Bitcoin in 2014, my senior econ thesis class. And I was playing around with natural gas and solar and thinking about those things. So that was my first exposure to it. I traded it in 2017 and then in 2020 after, when I saw strategy used it as capital, that was like an aha moment for me. And I was working in the capital markets and the insurance companies I was working with were like going downhill and their capital was declining. And I see strategies capital like going the complete opposite way. And I was like, I need to pay attention to that. And that was when I like fully. I mean, I had time. I like read all the literature. You know, I got really deep down the rabbit hole and I was like, oh yeah, I'm late and I need more exposure to this. And that. That was really the. The tipping point for me.
- [75:37]
A
The reason why I ask is because I got started in crypto in 2017, just fully bought into the Ethereum vision and the Ethereum potential. A lot of my first few years was just arguing with bitcoiners about stuff and a lot of it was talking past each other. Like Ethereum people cared about one thing and bitcoiners cared about other things. The thing that bitcoiners really cared about is really illustrated. The grand plan of bitcoiners of like hyper bitcoinization is really being expressed with what you have said on this podcast here today. Like capital markets, credit markets, insurance markets, equity markets, like it's all. It's all warped due to FIAT and the Federal Reserve and poor money management. And Bitcoin will be a return to simplicity, return to real money. And then, you know, fix the money, fix the world. And now I'm seeing it be articulated at a scale. Never really. I. I didn't imagine back then. But I do have to tip the hat to some early bitcoiners that I was arguing with way back when is like this. This is that there has been this, like, long arc of a grand plan that many early bitcoiners articulated. And so I just have to tip the hat to them for getting it so right.
- [76:53]
B
So early. Yeah. It's fixed the money, it's fixed the capital markets, it's fixed the equity market, it's fixed the credit market, it's fixed the real estate market, it's fixed the trust. You need to fix the trust. In the trust society, the fabric of trust is breaking and the trust systems are being built with transparency, and that's continuing to evolve. Yeah, shout out to the OG bitcoiners that saw it. I mean, Pierre, Richard, the speculative attack on Bitcoin in 2014, that was a really good forecast cast. And he's also on our board. So shout out Pierre.
- [77:28]
A
Cool. Awesome. Thanks, Jeff.
- [77:30]
B
Yeah.
- [77:30]
A
Bank Station. You guys know the deal. Crypto is risky. You can lose what you put in, but nonetheless, we are headed west. This is a frontier. It's not for everyone, but we are glad you're with us on the bankless journey. Thanks a lot,
- [77:51]
B
Sam.