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Sa. Foreign.
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Welcome back to the hurdle rate episode 63 for the week of June 29th, 2026. I'm Tim Kotsman. I'm here with Ben Workman, Jeff Walton and Matt Cole. This morning, Strategy announced a digital credit capital framework designed to strengthen digital credit, enhance liquidity, preserve long term bitcoin exposure and support long term value creation. I'm not going to go through all the details, maybe Jeff will. But basically Strategy increased its USD reserve to $2.55 billion. The stretch dividend rate increased 50 basis points to 12% effective for the record dates in July. Strategy established repurchase programs for for up to a billion dollars for their digital credit securities and also up to a billion dollars for mstr. And they also established a bitcoin monetization program. We have five topics on the table today. Not like how CZ says it, five topics on the table today. They are strategies, response to digital credit volatility, managing a balance sheet, the investor protections of digital credit, the resilience of sale or its drive and what the skeptics get wrong about digital credit. Maybe including that it's dead liquidity and duration. Jeff, I'll pass it over to you. Let's jump into Saylor's digital credit capital framework as well as any takeaways maybe you have from spending time with the bitcoin community last week in the heart of Manhattan.
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C
Yeah, the team has been incredibly busy over the last couple weeks as I'm sure the strategy team has. Last week we saw even more unprecedented volatility with the digital credit instruments. We saw some weakness in the price of STRC drop down to low 70s. SATA seemed to get dragged along with that as well, dropped down to the low 80s and since as of recording today they have rebounded pretty significantly. We saw the price of STRCs back up into the low 80s, 83 and the price of SATA is back up into the low 90s. Closed today around 92. And I think that that largely is because of what it what strategy, the actions that strategy has taken in the last week to bolster the balance sheet, bolster investor confidence and bolster the underlying lay of the land for the capital vehicle. So I just wanted to start with a little bit of lay of the land like how did we get here and and where are we today? So I think it was about a month ago strategy about it was about a month and a half ago Strategy utilized about $1.5 billion of the USD cash reserve to retire $1.5 billion of the convertible bonds that they had on the balance sheet. That $1.5 billion was part of a lot larger allocation of their $8.5 billion of convertible bonds that they were looking to retire. And that drew a lot of investor revolt because that USD reserve was there for the perpetual preferred equity instruments that they were issuing continuously out in the market. Now there was also some challenging timing associated with it. When they were negotiating the retirement of the convertible bonds, the price of bitcoin was around $84,000. And as everybody knows, the price of Bitcoin has fallen from $84,000 to trading high 50s, low 60s over the last week. So there was a bad timing element that, that brought down the price of mstr, that brought down the price of the press. The investors became a bit concerned with the utilization of cash for the convertible debt, as when they thought that the cash was there for the preferred equities. Now what do they do? In the last two weeks, Strategies responded by raising about $1.4 billion of cash. The USD dividend reserve is now back above 17 months. I think it's sitting around 17.9 months of coverage. And you're starting to see the, the development and the more solidification of the strategy going forward. So how do we think about USD reserve? How do we think about the, the credit instruments and the dividends on the horizon? How do we think about share repurchases? So let's just walk through the, the capital framework, which gives them a little bit more flexibility to move in both directions that they haven't previously had in place. So for example, they put in place a board approved USD reserve policy, a revised STRC dividend policy, digital credit securities repurchase program. So the ability to repurchase any of the digital credit instruments, the ability to repurchase MSTR common stock, and then the potential of selling Bitcoin or monetizing their bitcoin stack in order to pay the dividends into the future. So I think this gives investors a little bit more clarity and understanding for how they plan to manage the USD reserve moving forward. And in order to make any changes to the underlying USD reserve, they've got to get board approval of that. So it does. The investor feedback today, looking at the price of the securities, it seems like they're, they're listening to what the investors want and they're providing updates in the direction of the institutional and the retail holder of these instruments. Maybe I'll kick it over to you guys. I know we've, we've all been digesting this real time and the Plane is really being built as we're flying in here.
- [05:49]
A
Yeah, I think the response was a strong one. You know, there were definitely the elements that you highlighted. Right. There was certainly a timing element. I think if you had looked at this in normal markets, Bitcoin had rebounded at the time that they were doing the convertible bond repurchase, and they had the cash available to get a deal done in short order. And so I think that they used it and likely the intent back there, and obviously, I don't know what the actual intent was, was that in normal course of business, during the time when bitcoin's holding up like that, it would have been very simple to replace that cash from the reserve. Obviously, this one coincided with a drawdown, and I think it highlighted it because now the reserves were depleted during the exact type of market activity where you're relying on that reserve to be in place to provide the stability. So I think that made investors nervous, and that was vocalized quite loudly out there online. So they responded to that by making, in my opinion, the right changes here, putting structure around the US Dollar reserve. This event really highlighted just how much the market values the reserve as a part of the credit quality. And it means that they want to see some assurances that you do have the stability behind the product, you know, your flagship product stretch for Usaida, that you do have those reserves in place to be able to meet your dividend obligations in the event that the markets turn against you, like we saw. Now, the other thing that you saw them really put into place, which puts a little more structure under that, is they now committed not to letting that go down below 12 months. So they're committing to a floor of a year on the dividend reserve. They've brought it up to, I think it's 17.4 months currently, so getting close to being back to that 18 months. They've replenished that. And I think today you saw the market respond to seeing that strength back in place. So that was a very good change and update that they made there. The repurchase programs, you know, I thought those were interesting. Obviously, the credit products across the entire suite of the products really went deeper than I think a lot of people anticipated that they would. And we've talked before about the leverage that was out there in the system. And, Jeff, I'm sure we'll talk a little bit more about some of the things we heard talking to investors this week around that. But on the tail end of that, I think when you see that this is a possibility right it's possible for the price of these to draw down. Putting in some of those offensive tools, I think are prudent. Right. Putting these in place, it doesn't mean that they're going to get utilized right away. It means that they're there in the event that it becomes beneficial to your shareholders to go out into the market and repurchase some of these shares. So I think it was a good move for them to put those in place across the entire suite of products, because there were no repurchase programs in place leading up to this point. And, you know, the other thing that was interesting that I think a lot of people overlooked was the timing of all this. There was a little bit of a timing element to get this done quickly because the record date for the very first semi monthly dividend is tomorrow on the 30th. And so for them to come out and raise the interest rate on stretch and to make that applicable for that July 15th payment, they needed to get that done quickly so that they could modify that dividend. You have to do that before the record date comes up. So there was also a timing element to get that component done. And I think that the right move on this one was to follow the guidance that they had in place, raise the 50 basis points. You know, it was kind of what the market was expecting. So I think that was kind of a stabilizing move that they did there. But I really liked that they've now opened up and allowed themselves a bit of a more fluid framework for how those dividend adjustments are going to be made going forward. And this is something that we debated a lot when we were launching SATA was how rigid do you make this requirement, how algorithmic do you make this requirement? And the reality around these products is that there's a lot of external factors that can influence where the rates should be. Right? If you see the securities trading below 100, it doesn't always mean simply that there's not enough yield, that it's not a high enough yield. That's one input into the overall for how these things are gonna trade. But as we've seen, there can be macro factors, right? We've seen these get volatile around things like movements in the war in Iran and decisions that have been made around that. We saw what happened with a liquidity event, and Alsata really didn't appear to have much liquidity built up around it because the product's newer and it didn't have the same structure in place for people to take leverage against the security. We saw that it drew down pretty much as soon as the effective yields started to match. You started to see SEDA float kind of in tandem with stretch at some spread. And so I think you have to recognize that there's nuance to the decisions that need to be made. And you need to be able to, as a management team, to consider everything that's going on out there in the broader macro environment in the markets, you know, and with the pricing of your security. Right. If there is a sustained period where the market's telling you that your security should be priced differently, you should have the ability to react to that. So when you look at it all comprehensively, this is a strong framework that they're putting in place now. I think it's going to give them the control that they need to be able to maneuver from here. And I think that over the next couple of weeks, with this in place, I think the market's really going to begin to stabilize. They can now digest this. They can reassess the credit quality. I think that the dividend reserve really scared the market here during the short term, but that foundation is back under the product and we're back in the rebuilding phase here.
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D
Yeah, I also liked the updates that they made. And one of the things that I thought was most institutional of it is that when the bottom fell out, you really saw strategy. I almost would say go quiet for a little bit of time. And Saylor was not saying much, Fong was not saying much. And then I think about even us this week where we didn't buy Bitcoin, we were just sitting patiently that when you think like an institution. And so I go back to when I was at Calpers or any. But it's really any institution in times of deep market stress, the weakest people will overreact. And that overreaction is actually usually because they're forced to overreact. The thing that is usually the smartest thing to do is to watch things develop. And that doesn't make people feel good sometimes in the moment that are going through these things for the first time. But to watch the feedback, watch the markets react, and then decisively make actions when you know that they're the right actions to make. And so when I look at the actions that were made for the reasons that both of you just highlighted, the putting in place, not only replenishing the dividend reserve, but putting more structure around it. Well, I think that was obviously the right approach to the market feedback, which, by the way, I think the market feedback was actually very rational in wanting a Dividend reserve. Caring about a dividend reserve for a security that is intentionally designed to have less volatility than Bitcoin and by the way has had less volatility than Bitcoin and we can kind of get into this later, I'm sure, but even with its current volatility profile is still insanely attractive relative to other income opportunities. Like, like it's not, it's not broken at all. But, but this was improving that structure. Well, we didn't really have to do that because we already had a well built out dividend reserve. So I think, I think that was a smart, but not an overreaction of a response. Putting in place buyback facilities, optionality, more defined optionality around how they might think about utilizing Bitcoin if they needed to as capital in, in the short term, I thought made a lot of sense. And, and to me it was the mature response to what I would say, you know, on social media. I saw, you know, some pretty interesting and thoughtful takes and I saw a lot of just like really wild ones out there. Right. And, and, and, and wild ones that, that in different ways would completely break the structure. So like as an example, five years dividend reserves, and you think about five years dividend reserves. Would five years of dividend reserves make a holder of digital credit feel really good? Yes, but at that point the cost of digital credit for the issuer is more expensive than like any sort of financing you'll ever find. Like it's a complete loser for the issuer. So it makes zero sense to like imagine issuing Seda at, at $100 and putting five years of capital, $65 of capital in a cash reserve to back $100 issued. You're actually being debased in that trade. You just own way too much cash. It just doesn't work. And I get like, there's kind of going to be overreactions to the risk. And I actually was expecting in a bear market more of that type of overreaction, not necessarily tied to the price volatility, but just things that I expect to see in a bear market. What do I expect to see in bear markets? I've expected that whenever we saw the first bear market that the consensus would be that structured financed Bitcoin treasury companies are not cool and buying operating companies would be cool. Like it would be the better thing. Why would I expect that to be the case? And because it's less risky and there's also in my view, less upside. So when you're in institutional space, what do you see? In the institutional space, anytime there's a bear market, you start to see things like what they call smart beta in institutional circles. And smart beta is something that has less downside risk. So whenever there's a deep downside, it outperforms. And so people are like, oh, look at this thing, it outperforms. Like this is the better thing. And then as soon as the bull market happens, it underperforms. And then over the course of a market cycle, it also underperforms. And so we've been, I think, I mean, I think our audience understands this, the people that listen to this all the time. But the structure that's been put in place for both strive and also strategy has been very intentional. The common equity is amplified bitcoin, meaning by definition it is not, should not do good in a bear market. And I would argue that if you look at our common equity right now, and I think it's one of the only ones that has not broken a new low, the reason is not because of the amplified bitcoin story. It's because of unusual, positive, just execution on the team that's actually outperformed almost against all odds in a bear market what would normally be true. But amplified bitcoin is just amplified bitcoin. And so my viewpoint here is that strategy was measured. I think our response of not buying bitcoin, letting the markets kind of come to us over the last week using the structure that was so intentionally put in place, also is showing massive patience. But also, as you'll see with strategy and you see with us, is there's also no hesitation to do something massive when the opportunity comes. Whether that massive opportunity is an M and a transaction, when we bought Semler, whether it's a massive financing with SATA or a couple of weeks ago, when we're buying 2,500 bitcoin, it's thinking intentionally thinking with structure, thinking in terms of probabilities and not overreacting to any market movement. And I think that's what you should want from a management team. And I thought strategies moves today prove that they are thinking about it that way, which is the good way.
- [17:58]
A
I think when you go back to the conversations we've had many times around track records, this is one of the things that builds a track record for management execution. And when you go out and you start to see some of the responses that are out there, like you have to be incredibly careful with every move that you make, right? It needs to be measured, it needs to be weighed on a long term basis, what is the impact because if you over course correct on something because of short term dislocations, you can drastically impact your ability to deliver value to shareholders. And I think that can't be overstated enough. I mean, you saw some things as drastic as saying, well, suspend the dividends and you go, it's been a couple of weeks, like SEITA was at $100 eight trading days ago. This is an incredibly short term event so far. And yeah, it's one that certainly shakes confidence in the short term. Because as investors, as issuers in particular, you're always ready for when the test is going to come. It's always going to come. If you launch a new product, if you put a new structure out there in the market, it will get stress tested. That's nearly unavoidable. So when that stress test comes, the question is, how did you respond to that? Did you take a short term move and do long term damage? And doing things like suspending dividends would be long term damage? You have now damaged the confidence of the credit investor irreparably, right to the point where it would be incredibly difficult to go raise capital from these investors anymore. And so you have to be willing to sit and assess what's going on, right? What is driving this move, what is causing it? How long term do I think this is? Is this a structural deficiency with my product or is this a market event? Because those two things are very, very different, right? You always have to avoid fixing something that isn't broken. And what I think you saw strategy do was take the measured and calculated approach, right? They're going, what were the drivers here? And there were some obvious ones and there were some less obvious ones that we'll talk about here in a little bit. But you look at all the drivers, you look at what's going on in the market. Holistically, you're hearing the feedback, right? You do not want to isolate yourself from feedback. And so while you can get a lot of the overcorrection responses out there and people telling you what you should be doing, you should hear the feedback. Because the undertones of all that there is useful and constructive information and feedback being passed along. So you don't want to isolate yourself from hearing the market's feelings. Those are real. But at the end of the day, you have to take all of those inputs and put together a plan that you believe continues to allow you to deliver on your vision, to deliver on the strategy and to continue to provide long term value over time. Don't do anything that is going to cripple your ability to execute and operate this strategy. And that was what I liked about the framework is it didn't do that. Right. It, it tightened up the structural places that were proven that credit investors cared about. That's things like the reserve that drew some hard lines in there where they said, we hear you, we hear the feedback on this, we see how much you value it. We're going to tighten that part up and make that less flexible than it was in the past. But then I think they took the right actions as well to give themselves the flexibility for these moments. To say there's gonna be periods in time where we get stress tested and it might be due to a market event. You might have some broad market sell off that's happening. You might have global macro issues out there. And in those points in time, my move shouldn't always have to be raise the yield. Right. That's not always the answer because that's not always the driver of the way that you see the security performing. So I think they gave themselves flexibility in the right places and I think they took away some flexibility in the right places as well because the feedback was overwhelming on where, where investors care and what makes them uncomfortable. And so now that's being addressed and these products will be able to move
- [22:11]
C
forward, retain flexibility, boosted investor confidence and maintaining and improving the credit quality. Yeah, there's a few more things that I want to hit on here. First of all, all of the actions that strategy took today, these are actions of an operating company. ETFs can't do this. You ETFs are not gonna go raise $1.1 billion in a week to go improve the credit quality. It's just not gonna happen. This, these are the actions of an operating company that I think a lot of people don't understand. Like this is an operating company. They have a financial product that they're selling to the market. They also have an AI business, but these are financial products that they're managing into the future. A couple other things. 18 months, super deliberate. The choice of getting to that 18 month cash reserve target is super deliberate. That's what we are. We've focused on strategy is now very close, 17.4 months. So when you're thinking about why did we choose 18 months actually have an image to share here. This is. Oh, well, let me.
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There we go.
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C
Window. This is Bitcoin's worst historic drawdown. So we got three lines here. These are three historical drawdowns from all time highs. So this is a relative percent of 100 of Bitcoin, Bitcoin's historic all time highs. So I've got three lines here being 2014 Mt. Gox dry down, 2018 ICO bubble drawdown and 2022, the Blue Line FTX drawdown. And there's a couple observations that pop off at the screen just immediately. So on the X axis you see days from peak measured on the X axis and then the percent of peak measured on the Y axis. The couple things that jump out, jump out to me initially are that the three historical drawdowns are getting shorter each period. So the red line being the Mount Gox, it's the longest. The purple line being ICO bubble, that's the second longest. And 2022 FTX, they're getting shorter. Bear markets are getting shorter. This is visually kind of what it's showing to you here. Now there's, there's also a few assumptions that we make when we're testing and stress testing the drawdowns. Is the, the assumption that we've been completely locked out of the capital markets and we have zero ability to raise any additional capital. That's a very conservative view of how to think about this process because what we've shown in actuality is We've raised roughly $325 million in the last 45 days while the price of Bitcoin has been down 50%. So there's a few assumptions that go into this. But a couple other things I want to point out here, and it's around the middle of this chart so I, I wanted to identify the absolute bottom from the peak on these three different drawdowns. In 24, in 2014, the bottom was 659 days from the peak 22 months. In 2018 it was 470 days, 16 months and in 2022 is 429 days, which is 14 months. Now we are 266 days, 8.8 months into a drawdown from all time highs. And we have 18 months cash on our balance sheet to, to weather any potential storm. And we're 8.8.8 months through a bear market drawdown here. So when you're thinking about managing a cash balance sheet into the future, I want to be able to withstand any historical drawdown into the future and likely outperform that, assuming I have zero access to the capital markets. And so where we're sitting at today, 18 months plus 8.8 months, that would put, that would put us to, I think about 26 months would be, which would be four months longer than the 20, 20, 14 longest bear market. So that's how, that's how we start to conceptualize one aspect of historical drawdown cash management and how we're managing a liquidity profile. Obviously, we have the bitcoin on our balance sheet as well. To, to it is also liquid. We can sell bitcoin at any point in order to pay the dividends. We can sell common stock equity. But we also have the cash and the STRC as a buffer, a line of defense as needed in the event that we need to pay the dividends using those buckets of capital. So you guys have anything else to add there? Before I switch and start talking about what I heard in New York here,
- [26:36]
D
I would just reiterate that I think you laid out a really compelling case on why 18 months in a nutshell visual framework and why it helps get through those deepest drawdowns. Now someone might say, well, that's not enough. You should do double. And so as an operator, we're looking at that realized reality of us actually having access to the capital markets almost every week. I mean, you even look at last week, although it was a pretty quiet week for us, strategy raised a billion dollars of cash in a completely failing markets where everyone was selling that. The capital markets are very likely to remain open. So that viewpoint of just we go to sleep, we just pay the bills for the next 18 months is extremely conservative. You could do more, but the more cash that you have on the balance sheet, the more that you are being debased. And so it's really a managing the left tail risk, but wanting to take advantage and not lose on the right tail. When bitcoin goes up into the right, which is what the entire purpose of what we're doing is. I think that is, in my view why historically speaking, strategy has been very aggressive on having minimal cash reserves, is that they understand the market cycle of bitcoin. They understand the opportunity, the digital gold rush. They also understand the deep liquidity that their common stock affords themselves. And so if I'm them, I'm sitting there, I'm like, I can raise a billion dollars in a week. This is not a risk. But then the market disagrees and it's kind of finding that win, win, where the market and both sets of securities for them and stretch and they're common and for us, theta and our common feels comfortable. And I think that reality is a well communicated intentional framework around cash. And I think that what it's kind of shaking out is kind of like on the low end trying to maintain 12 months and 18 months or so on the normal end. And maybe there's a scenario where you might go a little bit higher depending on market conditions. But that 12 to 24 months kind of being the appropriate framework that is not too costly on the amplification side, but also gives comfort with actual data to a credit underwriter. I think that that is becoming more and more clear that that is what is needed. And then I think that just given all the market volatility, there's still some kind of stress to work through to kind of get back to normal markets. But so yeah, it seems like it's the win win amount.
- [29:23]
A
It gives them some room to breathe as well. Right. I think these reserves in practice should be able to expand and contract because what they're meant to do is stop you from having to force an action at the time where it's least advantageous to your shareholders. So if you do get into these really deep drawdowns where it's really non accretive to raise on any metric, you shouldn't have to, that's what the reserve is for. The reserve is to allow you the time to stay in place and wait for more favorable conditions. So you're taking advantage of the good conditions and you're not forcing yourself into doing things when it's least advantageous to your shareholders. And so I think that's why you see the 12 month floor instead of saying we have an 18 month floor on our reserve because you're committing to maintaining that amount of cash on your balance sheet to support these dividends. And, and you need to allow for the fact that there may be times where things happen. It might be some massive macro black swan event that draws everything down and risk capital's fleeing and it's drawing out of everything. And you need the ability to go into that reserve and it might take a couple of months for those things to work out. Right. We've seen many of those over the market cycles. And so you know these reserves while you try to maintain them during the good market conditions and keep them topped up so that you can weather a storm when the storm arrives. It's there to be a reserve. Right. It's there to ensure that as a management team you have the minimal number of times where you might have to take an action to steady something at the wrong time. Right. You're reserving, you're strengthening during the good times and you're able to sit and take the patient action of don't force it. Sometimes the best action is no action. That's kind of what you say saw us do last week while all of this chaos was playing out. Right. Sometimes you need to let the market work itself out in the short term and then you can be back when conditions are more favorable. So I think that allowing that flexibility is the right move. Not setting the floor at 18 months, allow it to expand and contract to make sure you can always take the action you need in the best interest of your shareholders.
- [31:33]
C
It's so similar to an insurance company. Yeah, like insurance companies have reserves for, you know, they plan. Okay, well I've got 18 months of claims that I know what those claims are going to be, but what do I know about that? There's going to be volatility in those claims. That's what the surplus is for. So it's like very similar to how an insurance company is managing their balance sheet. They think about reserves, they think about surplus over an excess reserves. They understand that their business might have volatility from day to day. You might have different amounts of capital you might bring in the door, different amount of policies you sell. You know what, one day maybe Progressive is cheaper than State Farm and you lose all your, you know, your capital that's coming in the door on the front end. So it's just the business model is so similar, but with such a huge high performance capital asset on the, on the underlying and the, and the product with a relatively known liability forecast. So it's, it's so similar. There's so many similarities that I think, you know, you could think about managing that balance sheet in a very, very similar way.
- [32:35]
A
The other thing that I'd highlight, quick, Jeff, before you move on is even when you look at those drawdowns in the bear markets, it's not a straight steady line down. Right. There's relief bounces along there and those things give opportunities where you may have the opportunity to replenish reserves. You may have had to draw down during the steep parts of those drawdowns.
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C
Right.
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A
So even during a bear market it's likely that you have the ability to operate. So what you see at face value in terms of a reserve in practice likely goes further than that.
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D
One last point, sorry to keep adding to this, keep it going before we
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A
let you move on here.
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D
So I agree with also Strategy setting the 12 month floor and I just wanted to give a little bit of context around that specific as a floor. And when I say floor strategy can go below 12 months with board approval. And I think that also is important and it's appropriate when you think about it that way. What that will mean is that strategy likely in practice will not go below 12 months unless capital markets completely dry up. And then you could see a scenario where their board might say maybe they would approve going below 12 months. What are scenarios when capital markets completely dry up and how long does it take typically in those scenarios over the last, basically since Bitcoin's been around to recover. And so there's a few scenarios to just highlight here. One would be Covid. And so Covid, in March 2020, you had capital markets just completely fall out in March. And then by August, the markets were at all time highs again. So you literally had like capital markets were frozen and then within six months you were back at all time highs. Liquidity was flush. When you look back in the eras of QE instances, it also tends to be somewhere between three to nine months. And so since 2010, if you look at any time, capital markets just completely flushed and the times where when you say Ben, you have a chance to get out, like you just didn't. It went straight down. Those are the times the Fed has to step in, and those are the times the Fed will step in. Because if they don't step in, whenever you have those liquidity crunches, there's also typically a liquidity crunch in US Treasuries. And you can bet your last cent that the Fed will not let the liquidity conditions of US Treasuries dry up, which would ultimately mean the death of the dollar. So I mean, if they did nothing, that's the scenario where bitcoin goes to millions and we win, or they step in and they provide some liquidity and we're back within three to nine months. And so I think that keeping that floor at 12 months, basically, unless you truly need to break glass, I think gives you that assurance that in that scenario, unless the Fed lets the dollar die, liquidity will come back within 12 months. And if the dollar dies, we'll be okay.
- [35:44]
C
Yeah, yeah. It's good framing. I, I appreciate the framing. I appreciate the press release, how it was, you know, structured and designed, all of those components. I want to shift gears because we've got a lot more content to get through here. And I think it's all really good. And I want to hit on it. One anecdote just of some of the conversations I had in the last week. We, we discovered that there was a material amount of leverage built up on the digital credit instruments. Everybody had thought that there was leverage looping happening in the defi markets. It turns out there was some leverage that was occurring in the traditional financial markets. And what we saw over the last week or two is a decent amount of unwind within those leverage markets. Anecdotally, we did hear that there was, there was one provider that was providing 3 to 1 leverage on STRC at SOFR plus 300 basis points over the course of a day, they changed that leverage from three to one down to two to one. So anybody that was levered in that position that was three to one immediately would have to post additional collateral or sell the underlying instrument to, to get to that 2 to 1 ratio. And that, that can happen overnight. So anybody that's providing that leverage that you can think of, this is like margin leverage just at scale, where there's one anecdote, and if there's one anecdote, there's probably several other anecdotes of other leverage providers within the digital credit ecosystem that changed their constraints or how much they would be willing to leverage against the instruments overnight in the last week. So I would venture to guess that was a decent component of some of the flush that we saw in the digital credit instruments over the last week. Additionally, just something that I've been thinking about here is short interest. And so short interest has been being built up on STRC and SATA. As of today, there's about $366 million of short interest on STRC and there's about $121 million of short interest on SAT data. Just interesting to see and think through that dynamic of somebody that's shorting these instruments. Why are they shorting it? Where, how much are they paying for it? How are they trading these instruments back and forth? Like what is the thought process? One thing that's, that's fascinating is that the, the short, if you were to take a short position on any of these instruments, it's reflexively negative. So as the, as there's additional weakness in the underlying security, right? If the price of SATA falls from, let's just say 90 to 80 and you've got a short position there, or if you enter a short at 80, you're now paying the effective yield of $13 on 80, your effective yield of that short position, what you have to pay as a dividend every single day gets greater and greater the more weakness that there is in the instrument. So it's, it provides this strength and protection because it gets more costly to short as it gets lower and lower. It's just a fascinating game theory analysis here. And the, and on top of that, just watching the borrow rates on, on SATA has been pretty fascinating. About a week ago the borrow rates were about 3.2% annualized and just as of today they're about 14 annualized. So it's interesting watching how, how those are moving together. So a lot of instit, despite these being held by a large portion of retail, there's a lot of institutional capital that's starting to trade these instruments and they're trading them on leverage and they're thinking about them in their ecosystem and how to trade these instruments because they were liquid high yielding and they were low volatility. Again, some of the other feedback I've got from people over the last week, the instruments were quote unquote, too good not to take advantage of leveraging the instruments because they were high yield, low volatility and high liquidity. So I would suspect this is something that we're going to be battling against pretty significantly into the future as there's always going to be incentive to leverage on top of the instruments because of their relative performance compared to other high yielding credit instruments out in the market, whether it be HYG or PFF or any of the other alternative instruments out there.
- [40:10]
A
I think the other thing that was interesting about the anecdote with the leverage was that all of those adjustments don't happen in the same timeframe. So one of the things that also happens if you think about people with standard exchange or brokerage accounts out there that are taking this on margin, you know what's different in the traditional finance system versus in the DeFi ecosystem is those margin requirements are largely uniform. So if everybody's taking leverage out around 100, those margin requirements start to kick in around the same point. So that's one thing, right? People start feeling pressure kind of linearly as the price is coming down. When you think about these institutional offerings, the anecdote we were hearing, that one followed long after the first leverage flush that we saw when stretch First Wicked down to 82. And so this one was as recent as last week. And so those adjustments are being made over time. These, these people that are providing the borrow on here are monitoring the performance, monitoring the volatility around the instruments, the price, looking at their exposure and then making adjustments to what they're comfortable with. You do sometimes see a longer tail than what you might see in a defi where it's a single flash and you get a leverage liquidation that cascades into a bunch of these different levels. Because in defi someone might have leverage at 1.5x1 might have it at 20x1 might have it at 100x in the traditional financial markets it's much more uniform. So when it hits, it hits in a very similar timeframe, particularly on products where leverage might be taken around a standard price that was up there around $100. So I thought that was, that was just interesting to dig into a little bit to see that there was some follow on activity of the changing of those requirements in the week following where the first major liquidation event seemed to have occurred with the securities.
- [42:02]
C
Yeah, and just so, so fascinating being in New York while this is all happening as well. So you're able to get that like real time market data and we were able to, you know, connect our entire exec team, the exception of Matt was around doing different meetings with different people in different high rise buildings running all the way across New York and then coming together at several different points throughout the day sharing and, and relaying information. Again, to Matt's point, the, the capital markets are open, people are willing to have conversations and things continue to move despite there being volatility. There's, there's two more, two more things I want to hit on over in the rest of the time we've got here. And the first one being thinking about investor protections with SATA and the digital credit instruments and two, and the high yield buyer like how, how do high yield buyers think? I'm going to kick it over to Matt for that for perspective on high yield, how somebody, how an institution will think about high yield and then to talk about the resilience of Saylor and Strive and a little bit of history on the company, Strive itself and where we're at today. So I'm going to kick it over to you, Matt.
- [43:10]
D
Yeah, I'll start, I'll start on the, on the high yield side. And so this is a learning that kind of hit me in the face when I was at CalPERS. But high yield investors, they don't typically look at hardly at all the duration of the high yield instrument. Their focus is on the cash flow from the yield and I don't mean the cash flow from the company's operation, the yield that they're getting paid and the chance that they view the company going bankrupt and then if they go bankrupt, the recovery rate of through bankruptcy. And so that is, it's credit underwriting. When you're underwriting high yield and you're not underwriting duration, the, the more that you flip to something that the credit is money good, the more you're focused on the duration over the credit instrument. And so that is an interesting observation about high yield markets. And so when I say that, you know, I think that there's, there's kind of like the reality that we see when we underwrite these credit instruments deeply. And this kind of gets into. I know you're going to go, Jeff, on some of even just like the misunderstandings of the credit risk, I mean, specifically on seda, but just not even understanding some of the protections that are in there and then getting kind of wild assumptions that we would be doing things that we can't even do. If you actually read the documents. Right. But when you actually underwrite the credit, that the credit's really strong. But the reality is, is that if you're paying a 12% with stretch or a 13% dividend, the market is saying they view you as a high yield issuer, right? So that, that is just the reality today. And that's also the opportunity today to buy these instruments, Right. If you actually can underwrite the credit risk and you understand them, then you can get compensated with an attractive yield that others get because they're not willing to do, to do the work. But if you view this as kind of like a high yield instrument on steroids, because that's what the yield would suggest, then all you should care about is the credit because that's how these institutional investors would value such thing. You should not care about the duration. So why does this matter? It matters because when you have changes in SOFR, whether SOFR's up or down, what that means is it's likely almost gonna be something that doesn't matter for what the interest rate of SEDA or stretch will be. So that is just something that we should expect in that. So that's the high yield analogy. And so my view is these changes are completely driven by leverage in the system because people saw these as low volatility and they caused volatility because of the credit worthiness, but also just from a change in credit perception around Bitcoin's drawdown, not because of a change in perception around interest rates.
- [45:58]
C
Yeah, I just want to add on there what I think you mean by not caring about duration. It's less of a concept of am I going to get my principal back out of this instrument? Is kind of what you're getting at, right, Matt?
- [46:12]
D
Yeah, it is. Because obviously when the interest, when the yield is higher, the cash flow is coming in faster, right? So what you would discount the principal back at the end of the term becomes immaterial relative to the high yield that you're getting paid to today over the years to come versus an investment grade 10 year paper or 30 year paper that pays little teeny bits of interest and then there's a big capital payment at the end. Right. Like high yield is the exact opposite. And so that maturity doesn't matter. And it kind of also gets into how do a lot of these things mature? They often get refinanced, they don't actually mature. And, and so the maturity event in and of itself is something that doesn't really happen. And so it is something that I think is misunderstood. You brought up, we were talking earlier, Jeff, before the hurdle about just how ETFs, high yield ETFs, how they're equity instruments and importantly even large institutions. So like a CalPERS as an example, they are major buyers of high yield ETFs. Okay. And you might say why like, like on the investment grade side they just buy the bonds, but on, on the high yield side they buy the ETFs. And the reason is, is that they actually struggle to get allocations on the new issue. And so it was kind of too much bond math. But, but because of that they just buy the equity etf, meaning that they're never even concerned about the principal rate.
- [47:52]
C
It's just a perpetual it rolling it
- [47:55]
D
perpetually collecting the yield with high yield risk.
- [47:59]
C
Right. It kind of that concept of the high yield buyer created the, the landscape for this high yield style ETF to even be created. Right. Somebody that's purchasing HYG, which, which is an enormous ETF by the way, I think it's like $19 billion of AUM significant liquidity. I think daily liquidity on that is like three or four billion dollars is absolutely massive. But the concept there is somebody is somebody's buying that equity instrument, not worried about principal protection at all. Gathering the yield on that instrument and assuming that there's liquidity. Well, the instrument has created liquidity and that allows for people to go in and out and collect the yield for a period of time, whatever their period of time may be. And it kind of removes the duration element completely because everybody in the planet has got a different duration horizon for whatever they're trying to do. Whether that's, you know, you need it for a year or somebody else corporately needs it for 20. That instruments there to facilitate whatever you want it to be. And that's, that's kind of these perpetual preferred equities as well. There's no cliff maturity, but it's a, it's a perpetual that's providing high yield backed by significant liquidity and a significantly liquid balance sheet. Which, these are all novel. These are, these are novel concepts. Finance is developing pretty significantly, I mean just even over the last decade with the advancement of computers and how computers are interacting with these and constructing portfolios. If you went back 20 years and told people that the construction of portfolios would look like it does today, I think they would smack you in the face. I did want to share this graph here and I pulled this together as well to try to put STRC and SATA in comparison to some of the other equity like instruments that are trading out in the market. So you've got JNK and HYG, those are the high yield ETFs over on the left hand side. And what this graph is showing is this is excess volatility and excess yield over and above cash. So on the X axis you've got excess volatility over cash. On a Y axis you've got excess yield over cash. And what you can see is all of the existing high quote, unquote, high yielding instruments are in the lower left hand corner. Meaning you're taking, you know, six points of excess volatility with four points of excess yield over and above cash. And you could see that STRC and SATA are just on a completely different playing field. Right, you're getting as of today 12, 12 points over and above cash. But you're also taking significant volatility. But then that's with data updated as of yesterday and that's assuming that this data is consistent moving out into the future. So that's assuming there's no reduction in volatility into the future. Now a couple things that are interesting here is that the slope of the line going to zero is very similar to the preferred equity. It's actually better than the preferred equity ETFs and slightly worse than the, than the high yield ETFs. JNK and HYG here. So you could, you could think the relativity, if you were interested in any of the preferred equity ETFs for yield that you're taking on the same effective relativity of risk return, you're just getting a significantly higher yield for it.
- [51:08]
D
Granted, higher volume, way, way, way better than traditional bonds. Tlt, the blue lot, the blue dot down there, Right. Just horrible.
- [51:18]
C
Right. And this is on a pre tax basis. And when I toggle over to a post tax basis factoring in return of capital treatment, it's significantly better than all of the other instruments and starts to go on a completely different trajectory beyond HYG and JNK so fascinating perspective here. When you're thinking about again developing a portfolio utilizing these instruments, you know, thinking through return of capital treatment, excess volatility and the relativity, like what, what am I underwriting into the future? And I think Matt, this is getting to your point of if you're trying to underwrite the credit risk and compare this to other instruments, the people that think digital credit is dead here, I think couldn't be more wrong. These are still incredibly attractive instruments. When you're putting this in the landscape of like what is credit? These are very attractive. When you, when you look at the
- [52:09]
D
math behind just gets into the thesis that we've had for so long that income is broken, the 6040 portfolio is broken. And when you compare digital credit, even with its volatility profile today, after the last two weeks that we've seen, it is still better on a return relative to risk metric than basically any credit opportunity, the income opportunity that's out there. And so it's kind of like obviously Strive and strategy are taking steps to make these par seeking instruments to stabilize them around 100. And this is a substantial bout of volatility, right? Like there is unknown in what ultimately this volatility profile will be. I can confidently say it's going to be less volatile than Bitcoin. I don't care what the last week looks like. This is just the structure and the math. Like digital credit will have less volatility than Bitcoin. The common equity on Strategy and Strive will have more volatility than Bitcoin. For that not to be true, physics and all of mathematics would have to just not be accurate. And that will not be the case. But in any, in any week, in any month, that can be true. But you put that volatility and you compare it to alternatives and just underwrite that it stayed like this for all of the rest of time. Even if that was true, those graphs that Jeff showed to me would still show something that I think would be a trillion dollar plus opportunity to build up. And so I think that the volatility will come down substantially and the graphs will look even better over time. But even if you thought that was inaccurate, the concept that digital credit is dead because of the volatility that we saw just could not be more wrong. Which gets into obviously us thinking long term strategy thinking long term that we are going to take steps as institutional responsible investors, obviously that's our background. But like, because we see where this is going, because we see these as still the iPhone moments for these companies and obviously we're going to try to make them the best that we possibly can. But you don't when you see how bad the other opportunities are. And then you also go talk to people that are investing in those things and you show them digital credit, you realize. And it gets back to what we've been saying. People aren't selling Bitcoin to buy SATA or stretch. They're selling all this other stuff, and it's still going to look better versus all that other stuff. Mind if I rip it for a second on this resilience stuff?
- [54:50]
C
Do it. Yeah.
- [54:52]
D
All right. Yeah. So I really wanted to get into the resilience of Strive, because it's really well covered. The resilience of strategy, the resilience of Michael Saylor, I think for all of us on this podcast, what he's gone through and survived and persevered throughout, I still don't think. I mean, obviously X is not real life, but most of X has no idea. They thought the last two weeks is going to crush Michael Saylor. And my guess is that the last two weeks probably would not be in the top 10 of tough two weeks that Michael Saylor's gone through in his professional career. That would be my guess. Maybe it's number 10, I don't know. But, I mean, the guy has survived a 99% drawdown. He survived his company becoming a zombie company, and he's sitting on 800,000 bitcoin, and one of his instruments was more volatile than he hoped, and he had to sell a little equity, buy a little cash. I mean, come on, he's gonna be okay. But I think that when it comes to Strive, Strive's DNA is probably the closest you could find. Very different story, but the closest you could find to something that would be similar to Michael Saylor. And I want to explain this because I think people don't remember this. They don't understand this. They forget it. Strive started off as an asset manager, but we weren't any asset manager. This is really important. We started in 2022 as an anti ESG asset manager, standing up against ESG and DEI that is actually very popular to stand up against today. In 2022, this is peak cancel culture. And so in 2022, when Strive was founded by Vivek Ramaswamy and I was part of the Day One team, I think I was like the seventh hire or something like that. But joined before the company launched its first etf, you had a group of people and their stories mostly rhymed with what, what my story is. I'll tell my story, but basically, when you look across drive, it was like, basically the same story. I quit my job. I had a very secure job. I took about a 50% pay cut. I uprooted my family from California to move to Ohio to cancel myself with the assumption that I would never be hired again in finance. Like, I was unhirable because I. I was going to come out and say ESG was a fiduciary breach of duty. DEI was a fiduciary breach of duty. We should be leaning into capitalism, unapologetic capitalism, meritocracy, both from a returns perspective, a fiduciary duty perspective, but also from an American exceptionalism perspective. We were standing up against blackrock, all of the major banks, every single asset manager out there, every single pension out there, every single. And it was extremely unpopular. People were like, you're crazy. And everybody at Strive that joined the company did some version of the same thing. And obviously it worked out great. We won that battle. But this is a group of people that we don't care. As in, we care about fiduciary duty, but we don't care about standing against the consensus. Like, if you think that, like, someone's gonna say, oh, you know, you're. You're a grifter, you're doing this to make money. It's like, do you realize that almost the entire team took pay cuts and took massive risk to join something that they deeply believed in? That is the DNA of our company. And then you look at, like, you guys and like, Jeff, you went all in on strategy in the bottom of a bear market, and you put you, like, you, You. You wrote a massive check because you had that deep conviction in this. Like, our DNA is. That is, like, this just doesn't shake us. And I think that that's something that is really key to the success of how we've won. And it's obviously key to the success of how strategy's won. But I think it's an important part of the story and one that I'm really proud of. And it just makes me laugh when people are like, oh, the financial industrial complex is sitting here to get you to sell your bitcoin and buy their stock. I'm like, bro, we all canceled ourselves and basically gave up all of our money to do what we deeply believe in. You think that that's changed at our company? It's like you just. It makes me kind of laugh. But I guess the bottom line is the resiliency that you're going to see from Our companies both strategy and strive. I still think the market doesn't understand and it's part of what will make our companies antifragile.
- [59:30]
A
You can't take big swings if you have thin skin. Like, you have to be ready for the public attention to turn on you. It happens throughout this. I heard an interview that Brian Armstrong over at Coinbase did recently, and it was one of those where you get into these bear markets and it becomes one of the most relatable things. And he was saying, he goes, I've never had 1,000 people mad at me at one time. He goes, you start building something and creating something that you think is unique and is going to drive value. And what you initially expect is that everybody's going to cheer you on. But what you quickly find is there's massive cohorts that cheer for downfall. And if you're going to do anything big, if you're going to drive any type of change out there in the world and take the big swing and take the risk, you've got to be resilient enough to withstand the onslaught that's coming your way, because it's going to come your way. The same way that the digital credit instruments just went through a stress test. You know, you're personally going to go through stress tests where people disagree with you, they start telling you you're crazy, they start questioning your motives, they start going at you personally, and you've got to be able to turn that off, put your blinders on and keep pushing forward, because later on they're going to tell you that you were lucky and you're just going to smile and say, yep, we got lucky, because you're going to know everything you went through and everything you pushed through to get to the other side of this and, and achieve the success you see on the horizon. So, you know, these slowdowns you get out there, the noise you hear out there, if that's enough to stop your team from progressing, you've got the wrong team, right? And here at Strive, we don't have the wrong team. We've got a group of the most resilient people, quite frankly, I've ever seen assembled. And that's why we can continue to go heads down, build towards something we believe in, right? We're going to create the future that we want to see and some people aren't going to like that. And we're going to push forward anyways.
- [61:27]
C
I went 3 and 33 in my college football career, so I lost. I went defeated two years in a row and I showed up every single day. I went to every single practice.
- [61:38]
D
You went defeated.
- [61:39]
C
I went defeated two years in a row. Two years in a row. Not undefeated. I went defeated two years in a row my sophomore and junior year. And I showed up every single day, every single two a day, every single 5am weight wait session, every single film. And I was just the punter. And I just kept showing up, kept showing up. And you're gonna have a really hard time if. If you're betting on us not showing up. We're gonna show up and we're get after it every single day. Yeah, I wouldn't go against that grain. Yes, we went defeated, but we did win a game my senior year and I had a 74 yard punt and it was in the game that we won. So, you know, I feel pretty good about that, Jeff.
- [62:18]
A
We're all in the meme podium. Spraying the champagne on himself.
- [62:23]
C
It was electric when we won that one game. My senior year was electric for sure.
- [62:28]
D
I know we're probably a little bit over, but I thought it might be worth just bouncing back and forth on some of the misunderstood credit protections of SATA. Specifically because those credit protections, it was only November when we IPO'd SATA. And they were like all things that we talk about, they weren't random, they were very intentional. We were a small issuer in the space trying to prove that we are thinking long term, we're thinking institutional. And it's become clear to me, both from even your New York trip talking to some institutions, but then also what you see on X, that I think people actually don't even understand these. And I think when you actually understand them, the credit profile not only becomes more clear, but it becomes better. So maybe kick it over to you, Jeff, just go through a couple of those.
- [63:28]
C
Yeah, I'll start it off. So first off, we are targeting a target trading range. Initially when we came out to market, we were targeting a trading range between 95 and 105. We've tightened that target trading range to 99 to 101. And we outlined the mechanisms that we have in place to try to get the instrument to trade towards the $100 par. And that's still our goal is to get the instrument to trade towards the $100 par. But just a couple to outline here of investor protections that people may not be aware of. So first off, us at Strive, we cannot reduce the rate unless the prior periods average sale price is greater than or equal to $99 a share. So this is, this is something that We've heard people talk about recently. It was like, oh, okay, well, you could just drop the interest rate whenever you want. Well, actually, no, we can't. We can't drop the interest rate until the security itself is trading at or above $99 for. For the period of time. So I think it's about a month. So. So that is a pretty significant investor protection. When you're thinking about underwriting the credit for a long duration. What is the probability that we are going to lower the interest rate on you holding this instrument? We're not fishing for people to drop the rate on them at any one given time. So, Matt, do you have any more perspective you want to drop on that one? Yeah.
- [64:57]
D
So this is just to really talk about seda and why did we do this at the time? So Stretch doesn't have this protection in place, but why did they not have this protection in place? And why did Strive need to put this protection in place? Stretch did not. Because at the time, investors were focused on BTC rating and Strategy's BTC rating was greater than Strive's they had. Now, our liquidity profiles are pretty comparable, but at the time we had worse liquidity. And so we were thinking through what are protections that substantially increase the credit quality of SATA that actually have teeth to them, but also don't give something that we're not willing to give. So we've been obviously very clear. We don't have encumbered Bitcoin. We don't have debt. We don't have margin requirements. We weren't willing to accept incurrence tests. So, like things where we couldn't take application above a certain level. So those were kind of our red lines, right? Not willing to give those. What are things that we're willing to give options that we don't intend to ever use that we don't think have value but also give comfort and that we will not issue. We will not lower the rate unless the average, you know, rate. Average trading range is above 99 for a month. That gives the protection that we as an issuer aren't going to go rogue. And I want to be very clear, like, strategy's not. They're not going to go rogue. Like, if you've ever met Michael Saylor, like, like that guy will probably lower the interest rates over his dead body.
- [66:32]
C
Right?
- [66:33]
D
Like, the guy is a madman when it comes to the credit worthiness. But we were a small issuer. We didn't have that. So we put that in place. And so when I see people put like pricing mechanisms around seita. Assuming we're just going to lower the interest rate to, to SOFR over the next few months, few years, 25 basis points a month. And then they do some discounted cash flow around that and they say oh, your stock's worth 50 bucks. It's like we can't even do that. You don't understand. But then when you went and talked to some of the institutions, it was clear that some of them also didn't understand that protection as well. So that's really kind of the purpose out there is that I do think that some people have been concerned about that and it's just a, it's just not an, an issue. And so I think that's probably good.
- [67:21]
C
And at max, even if the price of the instrument we're trading at $99, the max we can drop the interest rate is 25 basis points per month plus the change in SOFR. So you think about what is the max potential reduction in interest rate over the course of the year if the instrument is trading incredibly well. I'm assuming a scenario where this would happen as interest rates, SOFR interest rates effectively go to zero. The max that we would be able to reduce the the instrument is 25 bips per month, which equate to around 300 basis points per year.
- [67:52]
D
Maybe talking a little bit about the deferral. So like let's say we decided to not make a dividend payment. I think sometimes people think that, obviously you had a few people think that we should just stop every strategy and strive should just stop paying dividends. And obviously we're not going to. But, but even if that was something that the company decided we want to do it like for us it actually kicks off a formal process. Yeah, go ahead.
- [68:20]
C
There's a formal process and there's three things. So the formal process is a notice of deferral. The issuer must commercially and reasonable efforts over a 60 day period to raise capital to cover the deferred dividends and a timely cure is not deemed a failure, so on. So we have to use our commercially viable efforts to go and pay the dividends, whether that be from cash or equity sales or going out into the market and raising capital. On top of that there's a step up on the unpaid dividends. So the compounded rate starts at a regular rate plus 25 basis points and increases 25 basis points every month that goes unpaid, capped at 20% a year. So as if, if there were a situation where we weren't paying dividends, those dividends are going to compound and that rate goes at a step up. So it's, it makes it increasingly punitive for us to not pay the dividends. That is absolutely not our intention. And it's designed like that on purpose. And then on top of that, the holders may elect a preferred stock director after 12 consecutive missed payment dates and a second after 24 up to two directors and 25% holders may call a special meeting to do so. So effectively there would be board appointed members in the event that we didn't pay dividends for an extended period of time.
- [69:40]
D
So you add those things up. One, we can't just reduce the rate. Two, we must make commercially reasonable efforts to pay the dividend. Well, right now we already have 18 months cash reserve. So think about what that means, like commercially reasonable effort, like we already have the cash. Even if we didn't have the cash, we'd have to make a commercially reasonable effort. And then if we didn't, the interest rates will be stepping up. Like when you add those protections in place, it looks way, way, way more like a true credit instrument. Like there is teeth here. It's not just a we can just decide willy nilly to pay the dividend or not pay the dividend or lower the interest rate and there are no consequences. The consequences would actually be very drastic and we obviously felt very comfortable putting those in place because the whole goal here is to create a win win, right? To create an instrument that not only is credit worthy, but that people can sleep well at night knowing that the company is going to take the credit serious. And then obviously the benefit to the common is that we get to amplify bitcoin exposure without taking on debt term, actual debt terms, with the true maturity wall staring at our face. Right? That's the, the whole point of the win win. But my guess is that most investors aren't even aware of those credit protections that are in place with seda. And so hopefully that like getting that education out there will help with the credit quality of understanding these instruments better.
- [71:20]
A
Well, and you take it one step further as well and tie it back to the incentives of the management team. You tie the incentives of the management team to ensuring that all of those dividends get paid. Right? For our company to not pay dividends, it would be incredibly painful all the way around. Which is why you see the structure being built to ensure we're going to be able to pay those dividends. When we first IPO'd SEDA, we came out with a 12 month dividend reserve. And what have you seen us do during a bear market, We've increased it.
- [71:52]
D
Right.
- [71:52]
A
We moved it from 12 months up to 18 months. So we strengthened it. All the actions that we take are to make sure that we can support our product. Right. We view Ceda as the product of our company and we want the structure, we want the investor protections, we want the alignment of the management team, all to point in the direction of ensuring a successful, successful outcome of our product. Right. So that's what you see with this team. So not only is it the investor protections that are built into the prospectus here around ceta, but it's also the way that we function and measure ourselves as a management team and accordingly, the way that the compensation's done, which I think is also very important for investors to know.
- [72:32]
D
Yeah. Just to be clear, if we don't meet all of our obligations, no bonuses are paid. And so I see a lot of the critics say, show me the incentives and I'll show you the results. Which, by the way, I agree with. I think that's a great quote. Ben just highlighted the incentives. And so I think there's a. I would say a gross misunderstanding of what the incentives actually are here and how they're aligned with taking credit actions around seda. Extremely serious as a company.
- [73:03]
C
Yeah. And they're aligned on both sides the common equity pipeline. Positive Bitcoin yield, pay the dividends and then outperform bitcoin.
- [73:11]
A
What a week. What a week.
- [73:14]
C
Yeah.
- [73:17]
A
You always wonder, are you going to get a slow week? You know, is it going to be boring? And we've. We've yet to see one, so. Not yet.
- [73:23]
C
I, I do like these periods of time, though, because there's so much data and information, there's so much to gather from, from volatility and how the market is moving, investor feedback, conversations in New York. It's all gives you a holistic perspective of, you know, how this industry is going to move forward and what needs to be put in place in order to, you know, bring it to the next chapter.
- [73:47]
B
Resiliency for the win. Thanks, everybody, for listening to episode 63 of the hurdle Rate, the Digital Credit Capital Framework. For Matt Cole, Jeff Walton and Ben Werner, I'm Tim Kotsman. From all of us here, have a happy and safe Fourth of July holiday and we'll see you right here next week for another edition of the Hurdle Raid.