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- [00:00]
A
Welcome back to the hurdle rate episode 58 for the week of May 18, 2026. I'm Tim Kotsman. I'm here with Jeff Walton, Ben Workman, and Matt Cole. This morning, Strategy announced it has acquired an additional 24,869 Bitcoin for approximately $2.01 billion, bringing their total holdings to 843,738. Bitcoin last week was obviously packed with major developments. We had the President of the United States disclosing he owns mstr. We had South Korea's national pension service disclosing it bought more than $37 million in additional MSTR shares, bringing its total holdings up to nearly 150 million. And pension funds from Norway, Sweden and and Finland also reported new and increasing exposure, with some of them buying MSTR for the first time. Back here stateside. Strive also had a landmark week, announcing that SEDA will become the world's first daily dividend stock. And the company also confirmed it is now officially debt free after paying off all outstanding obligations. To cap things off, Strive had the honor of ringing the bell at the NASDAQ last Friday. Jeff, I'll hand it over to you. How did it feel to be in New York ringing the bell for bitcoin and striving for daily dividends?
- [01:30]
B
It was electric, Tim. I gotta say, I will never forget that day. It was phenomenal energy. We brought our entire team there. If you go back and watch the video, we had a crew, I think we had about maybe 40 people there, our team, our finance team, our marketing team, our sales team on the ETF side. It was an absolutely electric event, unveiling our new identity as well, the daily dividend company. And we saw that come through on the, on the NASDAQ video, the video that they played before we rang the bell and then seeing it as on the branding outside was just an incredible feeling. And we've got the opportunity to plant the flag and do something that nobody else has ever done before and start with daily dividends being the first security in US Markets history to pay a daily dividend. And I think we, we're probably going to spend a lot of time on this because the downstream second and third or third order impacts of paying a daily dividend are really, really large. And it's something that we've been thinking about for over a month now, and we've finally been able to, you know, announce this to the world, and the world is starting to recognize and understand what this could possibly look like into the future. We, we are truly rethinking equity. We are rethinking credit, we are rethinking money. And we think the disruption of this announcement is actually pretty vast and a little bit unknown because we're talking about innovation that has never existed before. So, yeah, it was incredibly electric. And maybe I'll kick it over to the rest of the team to provide some thoughts. Maybe I'll go. To start with you, Ben.
- [03:11]
C
Yeah, I mean, I would second what you said about ringing the bell at nasdaq. That's one of those experiences that not a lot of people get to have and you don't really know to expect. And so to be able to do that on the back end of such a big announcement, which was such a huge lift to get done, right. Anytime you're branching off into new territory, there's just a ton of uncertainty that comes with that. And all the way to the end, right, you're waiting. You don't know what type of confirmations you're going to get from these different corporations, whether it's NASDAQ or DTC or your transfer agents, right? You're getting alignment across them, making sure this is possible, making sure that you can get this done, and you don't know what to expect on the other side of that. So when we finally got to the point where we got the green light to move this, and then to be able to be in person with the entire company to celebrate such a monumental achievement from the team was just a really, really awesome experience. You know, these things, they don't happen from one or two people. And I think a lot of people, because we're all public, you know, we're the faces you see regularly, but we've got a whole support team behind us here that's incredibly creative. They push on things. They don't take no for an answer. And it's because of that that we're able to do big things, right? This was a big swing to take because you don't know that it's going to pan out at the end, and you're constantly on edge waiting for that one thing to pop up that says, nope, stopping your tracks, can't get it done. And it didn't happen. But we had to work very closely, and I think that that's a hat tip to the entire team. And a lot of the team that's been around as we were an asset manager, they built relationships with all these different organizations that helped us get this across the finish line in a way that I don't think a lot of other companies could have done. And so just incredibly proud of the team. To be able to pull this off was amazing to be able to celebrate with such a huge moment. Opening the markets on nasdaq, Matt, I even saw people out there talking about what great form you had for pressing the button. It's not quite the same. They must have seen your profile picture, you trying to break the Hamm on the Nicey. So maybe they took the hammers away, but, you know, it was just a really cool thing for us to go through. And, you know, now we're at the starting line, right? We got out of the gate here, and we're moving forward. And I think there's a lot of big things on the horizon, so very exciting time for us here.
- [05:33]
D
You can't. You can't press the button passively. I've seen. I've seen a few people just go. It's like, no, you got to press it with authority. Just like when. When we did it at Nice, you got nice. They give you a. Like a mallet to hit this three times. And we got to do that. When we launched our fixed income fund back in the day, and I asked the guy, I was like, can I hit this thing hard? He's like, hit it as hard as you want. So I'm just like, wham, Wham. It's just fun. I got to have fun with these things. But I think from what's on my mind right now, as we go through the hurdle rate today, we obviously had our investor presentation, which I think is a great. If you haven't watched that, just dive into, you know, what is this? Why does it matter? What's on my mind for this is, you know, some of the inside baseball of how we got here. I think it's just like a super interesting story. And then also what this means that Jeff kind of hit on, because there's a lot to unpack there. And we've been thinking about this behind the scenes because we've been working on this for quite a while now. But I think publicly people are seeing this as big, but be kind of fun to just go through some of the stuff that we're thinking on. On implications. But maybe to start with some of the inside baseball here, strategy, obviously, in April, they announced semi monthly dividends. And if people don't remember, I put out a poll of should strive do semi monthly dividends as well. Obviously, everyone said yes. At the time, we didn't know if daily was possible. Actually, we were working on paying dividends more frequently. Well, before Strategy announced semi monthly. Just like I'm sure they were working on it for a long time before they actually had their announcement as well. These things take time to work through what you can do, how you present it, and then people see the output of an announcement. But at the time, we were already very comfortable that we could do semi monthly. So initially it was like, well, should we just announce we can do semi monthly Monday? But it was that internal team that Ben was talking about that was like, we really think that more frequent might be possible. And so what is the first principle? What are we trying to do here? I think with digital credit, you're trying to do everything you can to increase the liquidity profile, reduce the volatility profile. And when you think about a preferred equity security, paying a dividend as frequently as you possibly can is going to maximally reduce the dividend event. And so we talked about this in our deck, that when you pay a dividend every single business day, well, at that, that currently, at least for now, is all that markets are open. If that's all that markets are open and you pay every day that markets are open, then the dividend event is not an event. It's just a continuous stream of dividend payments every time the market's open. So you don't have to prepare for that event. Which means that the volatility around a dividend should be reduced to effectively nothing. Could it be that some day traders decide that overnight they want to hold seita and then during the day they want to do their day trading and they could view the day as an event? Yes, but for almost everybody it becomes a non event, which I think is the ideal form for SATA. And so when our team was like, we think this might be possible, but we didn't have NASDAQ approval. When strategy announced, we didn't have DTCC approval. My view is like, we have a really strong team and if they're telling me this, let's let them cook. So publicly we just didn't say anything. We shut up because I wanted to see what was possible. And in that period from when strategy announced to when we announced, there was a lot of times where it looked like we were running into a wall, where it was like, okay, whether it was nasdaq, DTCC or name your thing of what is possible. And we just kept pushing and the team just kept pushing and ultimately we found a way to make it work to where NASDAQ was like, yep, that works on our end, dtcc, that works on their end. The transfer agents that works. The lawyers. That works. And we were able to put that announcement out last week. And so it's a testament to where when you saw that team of 30ish people on stage, to Jeff's point, we had like 40 people there. We had some of the key business partners, some of our board there, a few family members there. But when you saw the team there, that team is how this happened. If this was five people or 10 people, daily dividends would not have been a thing. You need a team to innovate. And what I think we're entering here, as far as the innovation era, something we talk about is this concept that three things matter. Bitcoin, energy, and AI. Our team is pounding the AI. You have this team of very sharp people, high agency people that are just pounding the AI, bringing ideas to lawyers, bringing ideas to nasdaq. And I think we're in this era of exponential innovation. I mean, it's pretty crazy that. Jeff, the first slide you went over, it was the history of dividend payments, and it was like hundreds of years ago. Then you have realty income. Then one month ago, strategy announces, semi monthly dividends. Then less than a month later, we're at daily dividends. What does that timeline represent? It represents exponential innovation on top of each other. And so I just think it's. That backstory is important here. And the last thing I'll say on the backstory is, you know, I think it's always an honor to ring the bell. It was an honor. It was the first time I ever rang an opening bell. Which, you know, opening bells are. They're both big deals. Opening bell is a bigger deal than a closing bell, and in that space. And it was great that NASDAQ leaned into this innovation story with us because they could have tried to shut this down. I mean, it had never happened before. We found this, you know, workaround in how it could work structurally with the way that their, their system was set up. But they could have said no. Not only did they say yes, but when, when we first announced it, you know, one of the biggest. If there was a pushback, there was a few pushbacks. But one of the biggest pushbacks of something that was like, almost unanimously positive was it's not real. You can't do this. It's not possible. Like, you're, you're, you're just like, you're, you're just like pumping something that's not possible. But then for the next day, to be on stage with nasdaq with them, you know, brand branding, what we're branded as the, you know, our identity as the daily Dividend company. It just showcases not only is this real, but this is real and something that NASDAQ themselves are proud to be part of this innovation. And so that was pretty cool.
- [12:38]
B
Yeah, it was truly one of those, like the Spider man meme where there's three people pointing at each other and it's nasdaq, dtcc, and our transfer agent, where it's like you talk, you talk, and everybody. We're bouncing back and forth between all of the different companies to figure out if it was possible. And those companies needed to talk to each other, and those companies needed to talk to each other. And it was. And we were kind of sitting in between, mediating every, every direction. And, you know, one of the, One of the interesting things, maybe, Ben, you can provide some information here, is to, To. To pay a dividend. It's almost as easy as filling out some paperwork for, For a single day. So we got to fill out some paperwork and we send the cash, and then we're thinking about, okay, well, let's just fill out the paperwork 22 times. Let's just do it every single day of the month. And we just have a cadence of where we're filling out the paperwork. And maybe, Ben, you could provide some perspective around that as well.
- [13:35]
C
Yeah, I mean, there's. There's certainly more administrative work to doing something daily. And I think that's part of the reason why people really never moved here. It's very easy to manage dividends on a monthly basis or a quarterly basis where you have to go through and submit it one time. It's a very different thing when you're doing it every single day. And part of what you've got to be cognizant of is you need everybody to have enough time for the processing. So it means you're giving them enough awareness and enough lead time before these dividends are due that everyone can coordinate the functions that they have. So, yeah, I mean, declaring the dividends through NASDAQ is. That's as simple as submitting a form. But there's not even a selection in that form for daily dividends.
- [14:21]
D
Right.
- [14:22]
C
The shortest you have in there is monthly, which is why I think a lot of people assumed that it wasn't going to be possible. What I thought was interesting behind the scenes, to your point, Jeff, about the Spider man meme, is they all wanted to talk, but they also all wanted to talk without us there pushing on them. So they wanted to talk to each other one on one. And have these conversations to figure out, is this possible? Dtc, can you process your piece? Nasdaq, can you process your piece? Transfer agent, can you process your piece to make sure that everything flows smoothly? Because this is going to become a regular cadence and there's complexities that come into these. The biggest thing you're focused on, particularly when you're making a substantial change like this, is you need to make sure that the outcome is not averse to your shareholders at all. So you're structuring this in such a way that it's only bringing a benefit to your shareholders. And so that was really the big conversation behind the scenes because this is a structural change to how these payments are going to be made. And so you need to be able to prove that you're not negatively impacting your shareholders at all by doing this. And you can imagine that from the lawyer's perspective, that's a real hot button and they want to be absolutely sure. And I would say that was probably the hardest part that we had to solve in this whole process. The operational part of this, of can you make these payments on time? Are you going to be able to get, does the record date work? Are we going to be able to get the shareholders? Does it give us enough time? How much time do we have? That stuff could all be ironed out, right? That's operational stuff. That stuff that could be solved for. And the structure was in place because we didn't try to work outside of the bounds of normal trading days where you've got the Federal Reserves open, you've got DTCC's open, NASDAQ's open, right? As long as you're working within those confines and they're all operating at full capacity, that part can be done. The harder part is the structure around exactly how you're going to do it, right? When do you strike the record date? Right? Which date are the holders getting the dividend? What day does that dividend cover? How do you do it? Do you accrue over a weekend? Do you do it just on business days? Those things were harder to think through because it hadn't been done before. There's no template for it. So we were building the first template. And what you're trying to do is create a smoothed out experience for your shareholders. Right? So in any given month, we wanted to know that every day you're getting paid a dividend, you know exactly what that dividend amount is, and for that month that dividend payment's going to be exactly the same. There's consistency There it's something that you can count on. You know, there's smoothing that process. And so that was how we ultimately landed on business days.
- [17:07]
D
Right.
- [17:07]
C
It keeps us within the operational bounds of all those other organizations that are involved in the dividend paying process. It was easier for us to account for. There's some nuance because you do have to account for days where, for instance, instance DTCC might be shut down, but NASDAQ's open. Right. There's a couple of days that have that nuance to it. But on business days, those were minimal. We know that we can manage that and it gives us the ability to ensure that we can spread the dividend payments out across every business day of the year and therefore we can account for those payments and ensure that our shareholders are getting the full amount that they're owed from these dividend payments.
- [17:41]
D
Right.
- [17:41]
C
Without fail. And so that was really the hardest part to crack. And we worked on the language for that for weeks. I mean, that was the part that we went back and forth week after week, refining it, tweaking it, running the scenarios, making sure that the math worked, making sure that it was going to fit within all the different agency frameworks. And at the end of the day, we got it done. But it absolutely was not without a lot of discussion. We went through a lot of different models for how to try to figure this out and how to make it something digestible for shareholders. And it was a. A huge win at the end of this when we finally got the sign off from everybody that everybody was comfortable that we could do this, that it was easy to account for, that we could materially prove the benefit to the shareholders, which, Jeff, you walked through in that investor presentation and it was just a hugely rewarding outcome to be the very first company to do something like this.
- [18:37]
D
Yeah. There's one other thing that I think is worth highlighting here on the inside. Baseball. And just some of the questions is one of the questions like, well, why don't you have to do a vote? An important part of that was, is there anything possibly that could be adverse to shareholders? And the answer to that question is no. But the second thing that's important here is that Strive is actually a Nevada company. Most companies out there that are public, the most common place that you're incorporated is Delaware. And Strive is actually a Nevada company. You're seeing a movement out of Delaware in corporations. So a prime example of that is Tesla actually recently moved out of Delaware. And so Delaware. Why are corporations incorporated in Delaware? It's not actually because it's the most business friendly state. It's the state that has the most precedent from a business perspective. And so if you're a company, because so many companies have been incorporated there throughout capital markets history, lawyers feel comfortable about the precedent in Delaware. But what you're seeing in recent times, and you're seeing several examples of this, is that Delaware is actually often not friendly to corporations. And so corporations are better to move out, like Tesla did when they reincorporated in Texas. Strive is luckily incorporated in Nevada. That was a legacy incorporation from asset entities. That was just part of the reverse merger of the company. But interestingly, Nevada is one of, if not the most friendly states in the nation for corporations. And so that is a primary factor on how we're able to be more nimble here. And I think that more nimble structure, obviously still doing all the legal, all the business analysis to make sure that when we do something that is not adverse to shareholders, but that we're able to move more quickly. And I think you think about the bitcoin space and AI and this exponential era of innovation and the reality is shareholder votes are hard. So when we did the merger, the acquisition of Semler Scientific, Strive did not have to do a public vote because at the time we were a control company. And so part of the initial announcement of the acquisition of Semler was that Strive already had secured a vote. Semler had to go get a vote. Okay. And so just interesting, like what happened there. So it was basically almost unanimously something that shareholders wanted. Iss, the proxy advisors, both ISS and Glass Lewis recommended in favor of it. And at the end of the time, they barely had over 50% of the people vote. Just getting 50% of the people to vote was a big challenge. We hired the best proxy advisor or Semler hired the best proxy advisor in the space to go out there and tell everybody, vote your shares, vote your shares, vote your shares. And it was like 90 something percent of people that voted in favor. So everybody that voted voted in favor. But getting people to vote was hard. And so to be able to, when there's a framework that is legally justifiable to operate outside of a vote allows a corporation to obviously both move faster but also move with less cost. So that was something that I was glad that we were able to do here.
- [22:15]
C
The other thing that is kind of funny and it's more just the space we operate in and how good people are getting at catching things as filings get made, I think it was the day before the formal announcement where we had to File the amended certificate with Nevada. And I think all of us were immediately out there on X seeing if anybody catches it before the SEC filings get made in the morning there. And so the speed of information is picking up and you're just waiting for that one person that's really on it. But you know, what we learned was nobody picked it up. And so I guess the tools need to expand out to the state where these companies are incorporated to catch things early.
- [22:54]
D
You just dropped some real alpha there. Ben watched it.
- [22:58]
C
That's because we're on the other side of it now. You can catch the next one, but
- [23:04]
B
got to look at the state filings.
- [23:05]
C
Yeah, it just speaks to how plugged in people are now because most of the moves that you make, it's with it. I remember even. And this was more markets related activity so people were spotting it. But when we made the stretch buy and it was within two minutes that that trade was out there being talked about online. And the minute you drop an SEC filing, people are out there talking about it. And so this one was interesting to see. Just how far do those tools go right now? Have people plugged in at the next level? So far the answer was no, but now I expect that's going to change.
- [23:37]
B
So though, yeah, it's been so fun and digesting all of this has been incredible. And I'd like to take some time and talk about the second and third order impacts and thinking about just the structure and how this came.
- [23:49]
D
Yeah, can I do one more thing? One more thing on. Sorry, I have to tell the story about paying off the debt before we go into the second and third order because. Oh my gosh. So it's just hilarious. So we, as everybody knows, when we first finished the acquisition of Semler, within a week we paid off 90% of the convertible debt. We paid off also this $20 million Coinbase loan. So we paid off 110 million of the 120 million and then we put aside $10 million to pay off the remaining debt as soon as we could. So for regulatory reasons, we could only pay off 90% of this convert. So we have 10 million outstanding and we're pretty public that our plan is to retire this thing as soon as possible. And as soon as possible was in the second quarter. So we get to second quarter and we start working on this, have the money, no issues there. And we start talking to investors and we got 9.2 million of the 10 million retired pretty quickly. It was not hard. And then we had $800,000. It was just like two investors that each held about 400,000 each and they just did not want to get rid of it. It was like, to a certain extent, it was like, I don't blame them. It's like im imagine hold like a company that had $800,000 of debt with a $1.2 billion balance sheet. It's like this thing is like safer than us Treasuries, like could not break it. You have the upside of asst. Because it was a convertible note and it was like, oh my gosh, are we really going to have to report that we have $800,000 left of debt? Because I can't convince these two people that each have $400,000 of this convert to just like, like, let us buy it off of them anyway. It's just a funny part of the kind of the behind the scenes thing. And over the last couple days, we were able to convince those two people to pay it off at par. So anyways, it was. But I was sweating that I was going to have to say Strive has a. What would it be like a 0.1% leverage ratio. People like, why didn't you just pay it all off?
- [26:03]
B
Yeah. You had to wheel and deal a little bit, some capital negotiation at the last minute and got it done. Yeah. I remember you calling me on Friday. You're like, oh my gosh, I've got these. Got these conversations like, come on.
- [26:17]
D
So good. So it felt a little bit more personal to just be like, we're debt free. Obviously from like a functional perspective, if you have 800,000 of debt, you're basically debt free from all intents and purposes. But we wanted to actually be able to say we were debt free. And I'm glad that we can.
- [26:33]
B
Yeah. That big slide where it says we have zero debt would be a lot different.
- [26:38]
C
People are going to be out there taking our 15,000 Bitcoin at the time and figuring out at what point it's less than the debt on the balance sheet. I'd be having that conversation.
- [26:47]
D
If coin was $10 a coin, you wouldn't be able to cover your liabilities.
- [26:53]
C
Exactly, exactly.
- [26:55]
B
Oh, my gosh. Yeah, it's great.
- [26:57]
D
All right, Jeff, let's get into that big of an idea. This is.
- [27:00]
B
Yeah, okay. This is a big idea. Let's start with, with just structure of money market funds. Money market funds are interesting because they accrue daily and they pay out monthly. So now you've got a new product that if you're a record holder on the record date, you get paid Your dividend daily, it's T +1. So you're getting your money much faster than a money market fund would be giving you your money. A money market fund pays around 4%. Seda as of today pays 13%. So thinking about that delta, the difference in getting your money faster than a money market fund, we put into the presentation, not a money market fund designed to be better than one. And it's honest. It's really true because we are delivering cash to the shareholder much faster than a money market fund would be receiving it. That alone, really big idea yet. All right, so we're talking about in the past when digital credit kind of emerged. When strategy launched and started calling this digital credit, we were talking about the credit market. We're like, okay, well that's a $300 trillion credit market. And then recently, over the last couple months, people have started saying, well, this actually disrupts the equity market too. It disrupts all of dividend paying equities. It's stable, it pays a high yield. You look at its return relative to S&P 500. It's something we've talked about out over the last couple of weeks on the hurdle rate. And you're like, wow, that actually disrupts a lot of the equity market too. And now with this innovation, you think this actually starts to disrupt bank deposits potentially and money market funds. And so, like, what is the total addressable market for a digital credit product? It's damn near everything. It's damn near every capital pool in the entire world because this instrument can get plugged into any of these different types of capital pools and provide a different opportunity that can be used in a different way. And I was doing a little bit of research on this beforehand. When Apple came out with the iPhone, it was. The iPhone came out in July of 2007, and in July of 2008, the iPhone3G came out. The iPhone3G was the first phone with an app store. The amount of sales that they had on the iPhone3G was like 300% greater than the original iPhone. It's like a step function in the capabilities that you were able to build on top of this new piece of technology. And I think this is kind of a similar type innovation. This is a step function in what you can build on top of this. You think about the secondary market, or I guess we'll call it layer three. Let's just talk about defi for a moment. And you think about, about the defi instruments that are out there, Apex and Saturn, if they're providing liquidity let's, let's say they've got a wrapped STRC product. If they're providing liquidity for the entire month, you get paid once a month. With STRC, that means you have to take on 29 days of liquidity risk on one day of dividend payment. Now if you're getting paid 22 days out of the month, month now you have to take on 8 days of liquidity risk instead of 22 days of liquidity risk. And the, the risk provisioning that you have to do in that structure, your risk Is dropped by 72%. The number of days of risk that you have drops by 72%. You go from 29 days down to eight days. That is a fundamentally different product that it, it changes the way you view the structure of a, of a secondary instrument. And that's really fascinating because now you can start to think about how your yield is tied to your risk profile, which is tied to the liquidity. Like the entire economics. The entire algorithm of the, of the product can be flipped on its head and redesigned. And that's, that's just one example
- [31:06]
D
of,
- [31:07]
B
of how this market can continue to evolve. You think what I've talked about previously as well is the development of a structured product on top of these digital credit instruments. You think about Bitcoin. Bitcoin is a perpetual commodity, right? It is going on into perpetuity. You think about digital credit. Digital credit is also a perpetual instrument going on into perpetuity. So is the amplified Bitcoin exposure. And what we've done is we've taken this perpetual Bitcoin commodity and we split it up into two layers. Digital credit, amplified Bitcoin. And you could take that digital credit layer and split it even further and start to change it from a perpetual into a term type instrument and provide another product to the market that can access a different capital port pool. And again, you think about risk provisioning on a product that's got, that pays you monthly is significantly different than a product that pays you daily. So mathematically the risk profile of building on top of this has improved drastically by having more days of dividend payment relative to one. So I'm going to pause there. Maybe I'll kick it over to you guys and build on top of it.
- [32:24]
D
Yeah, I think the big idea that people really need to digest here is that digital credit credit basically goes after almost everything. Money, checking accounts, saving accounts, stablecoins, credit markets, index equity exposure. It's more attractive than that. Structured products. Probably the only thing that it doesn't go after is growth equity, and that's Bitcoin and amplified Bitcoin. That is the only thing everything else, I think it eats into in a substantial way. And we're obviously still early. We're massively early. I mean, till June 16, we're not even paying daily dividends. The timer, the countdown is on. But then the innovation layer of building on top of that and providing the perfect products for all these different use cases that you're talking about. And I thought your explanation of kind of the on chain economy was great. I mean, one of the things that I talked about at NASDAQ was stablecoins should be able to pay a yield. They can't. And so you think about that and you're like, okay, stablecoins can't pay a yield. Now we have preferred equity instruments backed by the security of Bitcoin that are going to pay a yield every single day that are proving themselves to have very, very minimal volatility. How much of that TAM could that go after? How much of the TAM could the entire credit market go after? How much of the index equity investor that's trying to earn 7 to 10% a year, that sees digital credit paying 13% or 11.5% daily? How much could that go after? And I think that one of the things that I believe to be true, but we have fun saying, is that you're not bullish enough. Just generally, that's the big bias of people, is that you're not bullish. And maybe, except for Tim Kotsman, Tim, I think you may be just bullish enough. I'm not sure. But I think that's what's happening here with digital credit, is that it reminds me of when I first got into Bitcoin and I was like, I'm going to hold Bitcoin till it gets to 100,000 or whatever. And then you just realize you're like, wait, the right answer is you just never sell your bitcoin. It's going to go up forever. And I think that's similar with digital credit, is it first comes out and you're like, well, it's better than traditional credit markets. And then how big this idea can be, I think just continues to explode bigger. And the reason is the money's broken. Fiat currencies are broken. And you have the legacy institutions in the banking system, the Fed, the Treasury, all trying to hold on to the legacy system. And I think that that's rational. I think it's easy to call them bad actors here, but the reality is, as much as I believe that stablecoins should pay a yield. If stablecoins paid a yield and you had to run on the banks, the banking system collapsed, Right, because they're running a fractional reserve currency. What does that mean? But the reality is that the honey badger doesn't care. And so there's going to be innovation, there's going to be competition within the system, within the rules as they exist today. And I think that's what digital credit is going to represent. And I think it's going to start to eat into checking deposits. And if it does over the next couple years, what does that mean for the growth of digital credit? I mean, you hear estimates from strategy, from people at Strive as well, of 1 trillion, 3 trillion, $5 trillion the size of digital credit. And then it's like it's bigger than Bitcoin today. And so I think what we're going to see as this emerges is that digital credit is just going to take Bitcoin itself to the moon. And it really is that big of an idea. But we're also still just in this early stage of shocking the world one innovation at a time. The first one being digital credit itself. Now daily dividends. And I don't think that's going to be the last zero to one breakthrough of what digital credit will be.
- [36:39]
C
I was going to say there's a huge amount there and we haven't even touched on the impact that this starts to have for corporations in the way that they manage money. The zero to one of having a security out there that's paying double digit yields, that pays dividends every single day is a game changer for a lot of corporations that have cash sitting on the sidelines. And as volatility collapses in towards par and you start to get that liquidity out there, it becomes a very liquid instrument. And that's a major unlock. You're no longer as a corporation waiting a full month for the interest payments to come in from your bank deposits, or waiting for the dividends from whatever you're holding or the interest from your Treasuries, whatever it may be. That waiting period collapses. It's there every day now, every single day. And that's a major, major unlock because there's a lot of businesses that are working on very tight cash conditions and they need it on that type of a timeframe. So being able to bring an instrument to the market, when I look at SATA right now and it's done over $20 million of volume before it's 1 o' clock here on Monday, the liquidity is growing rapidly here and as it's expanding, that allows larger and larger players to come and operate in here. We always talk about it in the institutional investing sense where these larger institutional investors don't want to be more than 1 times average daily volume. And the same thing kind of applies to a corporation that's holding moderate term capital in an instrument like this, where they want enough liquidity there that if they had a chunky need for cash on that given day that they know that the liquidity is there in the market where they're going to be able to get their capital back out. I think that that's going to be a game changing innovation. But we can be in the disbelief phase for a while. And I think that's squarely where we are right now. I've even seen it out there on Twitter. Right. There's people out there right now that are in disbelief that this is even happening. I've heard people say, oh, it's not happening. And here we are at Nasdaq with it up on their screen as the daily dividend company. But that's not even enough for them to believe that this is happening. And so there's this educational curve that we're about to go on here because this is something that the markets haven't seen before for. But it's done in a security that's very understandable to a lot of individuals and a lot of corporations. This is going to feel familiar to them just with more frequent payments. And that's bringing the innovation and the power of Bitcoin into markets. It doesn't natively make its way into. Stripping out. That volatility is a major unlock. We all believe everyone should hold Bitcoin directly. We believe corporations should hold bitcoin on their balance sheet. Sheet. But there's an understanding you have to have that not all capital can absorb that type of volatility. If we have a 40% drawdown, and that's when I need the cash that hurts. I can't take that kind of risk as a corporation, particularly if I don't have massive excess capital sitting on my balance sheet. And so there is an understanding of the way that people's lives operate, the way corporations operate, which is very much the same way that your personal life does. Right. There's bills that roll in. You gotta pay those bills on time. You need liquidity at certain points of the month. A lot of times for a lot of businesses, the payments, the cash coming into them is chunky and it's a little uncertain as to when it's all going to show up. And so there's timing aspects to all that. I mean, these things are just realities of how the world operates today. So being able to bring an instrument that fits in that, right, that fits squarely into that model, saying, look, you're going to get your cash every single day. It's a liquid instrument, it's got low volatility. We'll absorb the volatility of the asset that's making all of this possible on our balance sheet. And I think that that's just a major, major unlock. But in the early days you're going to have to deal with some of the disbelief and the people believing that that's too good to be true until it becomes undeniable. And I think that we're starting to show the track record and having daily dividends is going to give us an accelerated track record of making those payments. And I think that's going to bring a lot of confidence in the market in these types of products. And that's going to make it easier and easier for corporations and individuals to weave these into the portion of their life where they need the cash flow, right? That's the important part that is such a core part of the way that the world functions, that the fact we can bring that in an instrument that's backed by Bitcoin and made possible by Bitcoin is just a massive, massive unlock.
- [41:15]
B
Totally, totally. I want to talk about the infrastructure behind the scenes and how I anticipate this to evolve and change. I've been thinking about this quite a bit and when you think about, I'll take a few perspectives here. When you think about money, when you put money into a bank account, your principal protection of that money that you put into the bank account is the bank's balance sheet. This secondary principal protection is the FDIC. The FDIC which we've talked about is about 70x over leveraged on relative deposits and all for all intensive purposes, your principal protection is inflation. When you put your money into a bank account and now when you think about putting your putting money into a digital credit instrument, your principal protection is effectively like a risk weighted liquidity. And to Ben's point, you think about, you know, sizing a position relative to a instruments, liquidity becomes more and more important. And you think about the scale that these instruments can start to grow and what we've seen so far with STRC and what we anticipate can happen here with Zeta, that liquid these instruments are becoming, I think they could become incredibly Liquid very similar to what we see with the development of like SPY and the advancement of hyg, these new instrument and vehicles that increase liquidity significantly. So I'm going to make a few projections for the next four years. A couple of things that I think will happen in the digital credit space. I think daily options will come to the digital credit space. I think $1 strikes on the options chain will come to the digital credit space. Right now there's $5 strikes. And I think we can see an advancement in how the computers utilize these instruments. Very similar to what we see with like SPY and zero TTE call options and very small relative strikes. There's a lot of activity that happens in those instruments as they are hedging and moving and handling the market. And so as that kind of evolves and these things get larger and the trading volume of digital credit relative to the trading volume of Bitcoin continues to grow, I think we can see that marketplace expand. And there's just so much optionality. You think about why would that be interesting? That would be interesting because of the timing arbitrage in the rest of the market. There's different things that happen at different points in time. Right. Like any other dividend paying stock that's paying monthly, you can imagine an incentive structure where you're holding an opposite position of that instrument that's paying monthly for 29 days out of the month. Month. Park that in digital credit and change that position so you don't have to pay the dividend of the instrument that pays once per month. So the optionality here is massive. Like the things that people can do and trade in between is massive. And I think Soleil brought this up on our last true north, the trader, they may start their day in digital credit. It so like pulling your car out of the driveway and going to work and then you end your day, you pull your car back into the driveway and your digital credit instrument so you could get your dividend and that's, that's your day. Like you, you may have a day trader that leaves in the morning, comes back in the evening and that's just the position that they park in for their trading vehicles. I think that's a, that's a fascinating idea. You can't price that in. We don't know what that looks like. And it will evolve as the market starts to figure these things out.
- [44:58]
D
Yeah. What I heard you saying is that for people that have short duration timeframes, digital credit's a hurdle rate. It's the cost of capital. Right. That why would you park your car at the end of the day in digital credit? Why would you pull it out? Because in the past, there's a lot of capital that does that. The day trader, that's what they do. They trade during the day and they look for something to park their cash in at night. Right. And what they're parking in is something that should be secure as the cost of capital thing that they're going to hold themselves into. And I think digital credit is just going to be a fundamentally superior version of that. And all it really is going to need is people to just understand that. And maybe Soleil will be user number one parking his capital there and there's going to be many more. Right. It's too good of a yield compared to the volatility profile and the risk profile, the credit profile of it, for that not to be the case. Which is why we're doing it. Right? I mean, we're seeing what's out there and you just like there's the ability to provide something better. Right. I'm not a fan of having my money sit in a checking account earning nothing. That's unproductive capital. Right. It's why you minimize to the greatest extent the amount of money that you have there, because you know, it's being debased. You know that you're basically providing free profits to banks when you park your money in a checking account. Right. And so people are going to be adopting. I mean, they already are adopting it. They were adopting it with monthly. Why? Because it was already even with monthly. And the timing inefficiency there, it was still better than anything else. And now it's just taken a step function even further, I guess.
- [46:59]
A
I have a quick question for you guys because I remember when Smarter Web, I believe, they uplifted to the London Stock Exchange and they were very proud that they had all these signs around them that said Bitcoin. And one thing I saw on social media over the last couple of days, at least one person said, strive, the daily dividend company, they did all this stuff and not once did they mention bitcoin. So I'm just curious. I know other people probably are. Was that intentional or did it just kind of happen that way? Has the narrative just shifted to monthly and now daily, bimonthly, daily dividends?
- [47:33]
C
I mean, this is a major identity shift for us.
- [47:36]
B
Right?
- [47:36]
C
So there's a component of this where you're proud to be the very first one to bring something like daily dividends to the market.
- [47:42]
D
Market. Right.
- [47:43]
C
And that becomes a core Part of your identity. The other side is we're starting to break into a market that's not bitcoin native, right? And so a lot of the traditional finance space, they're not plugged in on bitcoin. They're not familiar with the volatility profile of bitcoin. And so we're trying to make things look and feel as familiar to them as possible, right? We're creating products that feel functionally similar to the ones that they're used to. Ours just has the strength behind it of having digital capital there, right? Bitcoin. And so it does change the way you do your marketing a little bit. When you're out there talking, you need to be able to speak that language to them, right? If we started with a bitcoin native first talk track to a lot of these traditional finance institutions or a lot of these corporations, it's hard for them to grasp because they get lost in that concept because they don't have the initial fundamental understanding of bitcoin to build off of. But when you come to them with a product, right, a preferred equity, and here's the structure of the equity, here's the rights that you have as a holder, here's the cadence at which it pays, right? Here's the rate that you're getting, here's the duration on the instrument that feels familiar. And they're able to connect with that product first. They understand the product, which then brings you to the next level, which is what's making this product possible. And that brings you to Bitcoin. So it's a bit of a blend, right? We've got two sides. One, we just have this really awesome identity that we just launched, which we're incredibly proud of, because anytime you get the chance to be the absolute first to do something, it's a massive deal, absolutely massive deal. And the other one is because we're that connection rail from traditional finance to the bitcoin world, you have to acknowledge that not everybody is at the same point in the journey as we are. And so we can't always speak to them like they are. That would be doing them a disservice. It would confuse people. It would turn them off before they even get an understanding of what this product is and how beneficial. So it's a blend of both.
- [49:55]
B
The psychology of the investor is also very interesting too. You look at our balance sheet, you think, think, okay, well, we've got 12 months of cash reserve, we got six months of STRC reserve, then we got the big bitcoin reserve, and I think there will be people that will be interested in the risk return profile purely from the fact of I might try it for a day, I might try it for two days and see how it goes. And then it's, I guess the barrier to entry is, is lowered, I think, pretty significantly from I guess, the, the risk profile and what that may look like in the future. So we, we're you very interested in the psychology. We're very interested in the volatility. We're very interested in the mathematics and the arbitrage trading behind the scenes and, and ultimately the bitcoin underwriting. That's our job. And I think having the, the daily dividend company, like that's what we do. That's the product that we provide. Provide.
- [50:54]
D
Yeah. So and another way I think about it is we are trying to put 100% of the volatility of bitcoin into the common equity. Right? And so for the common equity, it's like bitcoin, Bitcoin, bitcoin growth, bitcoin outperformance, right? Like, like you have to be going deep into bitcoin to even understand how the common equity is going to move. But if you put, put all of the volatility into the common and you strip all of the volatility out of the pref of seda, then what's left is just the income, right? You're not getting the upside of bitcoin or hopefully the downside. If we do our job well and we strip out all the volatility of the instrument. And so all that's left is a dividend. And so you think about that and what's important, one analogy here is this insurance analogy, Jeff, that you brought up when you roasted some coffee. All right.
- [51:54]
B
Where
- [51:56]
D
how do insurance companies operate? They collect these premiums. The premiums come in. That's also about the amount that comes out to pay these insurance claims. And the insurance company makes money off of their balance sheet. Well, what's on the insurance company balance sheet? You and I know, Jeff, but the average person that takes an insurance policy, they have no idea what's on the balance sheet because it's not relevant. They trust this company to be able to pay out their claims. Right? And, and so for us to be able to pay out our, our dividends with SATA, right? And then we manage that risk.
- [52:30]
A
Right.
- [52:30]
D
And so the most important things to, to explain are, you know, we have a balance sheet that we're, we're putting risk capital to work, we're underwriting risk, and we're providing this daily income stream where our company is doing everything we possibly can to minimize the volatility. Here are the different things that we can do, the different levers that we can take. And, and for the average person, that's what they want to know. And I think that's part of the challenge of bitcoin just generally is that many people are volatility at ever. They don't like volatility. They just want a return that is a return that allows them to go about their life, to meet their goals, their financial goals. And that's what we're trying to provide. And so it's not trying to not talk about bitcoin. It's just trying to start meeting people where they are. And also to make it to Ben's point, familiar with how other companies talk about products that they provide where they're also taking their balance sheet and putting it to risk. It's like, you can't go to someone that is used to that and saying, well, let me tell you about how we manage our balance sheet and how it's different than insurance companies and how they manage their balance. They're like, how do insurance companies manage their balance sheet? Like, I don't even know what you're talking about. Right. And, and so that's really the. The idea here, but obviously not moving away from ourselves as, you know, a bitcoin company. And for our common equity investors, you know, still setting bitcoin as our hurdle rate for.
- [54:06]
B
For common equity, Bitcoin is the hurdle rate. Digital credit is the hurdle rate for
- [54:10]
C
most others, Level one and level two hurdle rates. I like it.
- [54:14]
A
Yeah, that's what I wrote down. Down when Matt said digital credit goes after almost everything except growth equity, which would be Bitcoin, and amplified Bitcoin, which goes after that.
- [54:28]
B
The market's at threat.
- [54:29]
A
All right, well, thank you everyone, for joining us for episode 58 of the hurdle Rate Exponential innovation for Matt Cole, Ben Workman, and Jeff Walton. I'm Tim Kotsman, and we will see you back here here next week for another edition of the Hurdle Rate.