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Is STRC Bulletproof or a Glass Cannon?
Recorded: April 1, 2026 Duration: 0:29:00Space Recording
Full Transcription
Thank you. and we are back hello everyone welcome back to another block mainstream i'm your host 563
head of research over here today i'm happy to be joined by kevin lee he's the ceo of saturn credit
and i'd say uniquely positioned to help answer some burning questions
that we all have about Michael Saylor's strategy, stretch, all of that, because Saturn's built
right on top of that ecosystem. But yeah, Kevin, thanks for joining us. And maybe a great place
to start is strategy already has MSTR, right? Why do they need these other vehicles like stretch like what does that do for them
yeah i think strategies core offering with the micro strategy stock is amplified bitcoin right but there's many risk profiles of investors in tradfi and the whole purpose of stretch is to
increase the risk investor profiles that that people can access right like not everybody wants
a 40 volatility asset so stretch really expands the lower risk profiles as well as
into like the fixed income market that makes a lot of sense yeah because i think the underlying
assumption that people have when they look at stretch is like and then like the assumption
that sailor's probably making is he wants to get more money into the door so we can buy Bitcoin,
because he's assuming that this 11, 10, 11, 12% he's paying out on stretch is not going to be
the CAGR that he's going to get from Bitcoin. So, but from like the investor perspective,
why would you even buy stretch if you can just buy Bitcoin and hopefully get that larger CAGR? But there are people out there that want that safer, you would say, lower volatility
asset that it is paying out that yield.
Yeah, I mean, I think when you buy Bitcoin or MicroStrategy, your time frame should
be four years and plus.
And when you buy stretch, it's for a cash position
or a timeframe that's less than 12 months.
And you just want a really
simple yield for you.
So I think from that perspective,
one is timeframe and then the other
is just really
how you want to manage your
portfolio. You don't want everything in
MicroStrategy stock or Bitcoin.
Having some as a cash buffer is what you want. Yeah. I think what people get scared about is they hear
these high yield percentages and they think back to certain traumatic events that have happened in
crypto because of these high yield ideas. But let's talk about why, well, especially because you guys are building right on top of it,
your assumption on why this is different, right?
Why is this very different from something like Luna UST
or these other high yielding products that we've seen in the past?
So, I mean, first thing is,
Stretch is backed by the balance sheet on MicroStrategy's balance sheet.
So the LTV of stretch today is around 23%.
So what this means is that for every dollar in stretch and every liability senior to stretch,
there's at least $4.8 of Bitcoin on the balance sheet.
So in order for this to become one-on-one,
Bitcoin would still need to drop by 75% to 80%. So I think number one,
the biggest difference between this and Luna
is that they actually have the asset on the balance sheet
that backs this asset.
And I think the most important thing about Stretch
in which what people,
or one of the most innovation points about Stretch
as digital credit is that this
risk is transparent.
You can wake up every morning and really calculate what the LTV or the risk is because Bitcoin
is priced in real time.
And I think Stretch is the first asset that has really balanced yield, liquidity and stability
at the same time. So as risk really goes down, as LTV increases,
you have the optionality to increase or sell the position based on the risk.
So it's very different from, I guess, other types of like,
other types of credit instrument in that there's liquidity that allows,
that compensates you for kind of like the risk that there is.
Yeah, my understanding was Sailor raised a lot of cash to be able to pay off like the dividends.
But you're saying that it's not just that cash.
It's also everything else that MicroStrategy has on their balance sheet is basically backing stretch.
So there's three buffers that strategy has to pay the interest and why we think it's
so safe.
Well, first is strategy has access to the equity markets.
And from 2024 and 2025 each year, strategy was able to issue around 15 to $18 billion
of equity.
And this year they are on track to issue $ billion dollars of equity and this year they are that they are on track to
issue 20 billion dollars of equity um and the annual the annual interest obligation on all of
the liabilities is around one billion dollars so this is almost this is like five percent of what
they have to equity access so their equity access would have to fall by 90% to 95%,
and they will still be able to pay, right?
In the event that the equity access is revoked
or they don't have it,
they will rely on the second buffer, which is the cash.
They have $2.25 billion of cash on the balance sheet,
which can pay around 24 months of interest right now.
And then the third buffer is ultimately they can always sell the Bitcoin that backs Stretch
on the balance sheet. So there's clear three kind of tools that they have. And the most important
thing about Stretch and digital credit is not only the transparency and the collateral ratio,
but also what the toolkits they have. The moment they start tapping the collateral ratio, but also what the two kits they have, right?
The moment they start tapping the cash buffer because they don't have access to the equity tool,
that's like this first sign of warning for you. When they've used up kind of like the cash buffer
or halfway through, it's the second sign of warning for you. And ultimately when they sell
the Bitcoin, it's this third sign. So you can really monitor not only the risk,
but also the tools that strategy has in the toolkit
and adjust your position based on what you see.
Because there's liquidity to stretch,
at the same time, there's this stability aspect to it.
That makes sense.
Yeah, and I'm wondering why MSTR holders
would be happy with that like
why do they want to be diluted so sale can raise more cash so like stretches back more like doesn't
that hurt their like getting diluted is obviously a bad thing for them yeah so for the mstr stockholders
we what so i'm a i'm a shareholder for. What we want is we want amplified Bitcoin exposure.
So for them is they need to go borrow money through different ways and buy Bitcoin.
And they would have value accrual when Bitcoin grows 30%, right?
And then your cost of capital is 11%.
So they can capture the spread.
So the trade for strategy is really the spread between Bitcoin's
CAGR and the cost of capital. That makes sense. Yeah. And really what you want as a shareholder
is your Bitcoin per share to increase over time. So as long as they're able to do that, I guess
that you'd be happy. Exactly. Yeah. Okay. So that's interesting. I i think so you think the fears over uh stretch or overblown at
this point yeah so if you really underwrite micro strategies balance sheet right there's
eight billion dollars of converts that is like that and then there's everything else is more
preferred equity like instruments um so the instruments. So the biggest risk for micro strategy is the $8 billion of converts that will be due
from the end of 2027 to 2032.
So in that aspect, the biggest risk is not like a 10K Bitcoin price movement for a day,
rather than it's more time-based and price-based.
So Bitcoin would need to be under 10K from 2027 to 2032 for there to be any bankruptcy risk.
The biggest risk that I see today is not necessarily bankruptcy risk,
rather than it's like a loss of the collateral
base.
So when Bitcoin falls to maybe like 50K or 40K, right?
And when these converts are due, they would have to sell either more equity or a portion
of the Bitcoin to repay the debt.
So you could lose like 5% or 10% of the collateral base.
Like that is quite likely likely but the likeliness of
a micro strategy bankruptcy is quite low considering their access to capital markets
the leverage ratio that they have and just how much time that they have i think that's an important
point um so i think sailor's whole idea is that he wants to see the world with the entire financial system built around Bitcoin as the base asset, as that pristine asset.
Do you have an opinion on that?
Do you think Bitcoin-based credit is the future and is strategy trying to be the place that like monopolizes that yeah so we think i mean
the whole thesis of bitcoin finance is to use bitcoin as a collateral and once bitcoin is used
as a collateral it's natural that credit is formed and one of of the thesis that Saturn has is that Bitcoin finance would actually happen off-chain
rather, or it will accelerate and happen faster off-chain rather than on-chain.
And there's really three reasons for this.
The first reason is from a demand side.
Most credit on-chain is over-coll collateralized and secured. And this security nature would limit demand
because there's liquidation risk versus converts and the preferred equities that strategy is using,
which is unsecured. So it's easier for the borrowers to borrow this type of capital.
borrowers to borrow this type of capital. The second point is the supply side of capital,
right? Lending liquidity on chain is always like a bottleneck. Assume that MicroStrategy were to
borrow like $20 billion from Aave, for example, that would suck up half of the lending liquidity
on chain. That just makes it very hard to like interest rate would spike everything
would spike but when strategy borrows money from off-chain into the fixed income market
essentially it's unlimited lending liquidity right because there's 200 trillion dollars of
the fixed income market and this really allows them to scale borrowing at this scale without
having the interest rate spiking.
And then the third thing is like security.
Since Bitcoin doesn't have native smart contract, there's going to be other kind of counterparty risk.
And what has been shown is that from an institutional point of view, off chain
contracts is more safe to them.
Yeah.
You bring up a lot of good points. And I think we go back
to this point a lot that crypto is just not mature at this stage to onboard that level of capital
that would be required with that level of trust. But yeah, let's take let's look a little bit at
a different angle here as far as Saturn's concerned. What do you think of this whole idea
of a risk-free rate for crypto, right?
Because I've seen people say like,
oh, ETH staking rate is the risk-free rate,
or maybe the lending rate over on Aave
for some stable coins is a risk-free rate.
But you, I mean, I'm assuming that you assume
that Bitcoin is that pristine asset we should be thinking
of when we're thinking of like
a risk-free rate for crypto but obviously we don't have that on chain yet but you guys are trying to
build that yeah if you think about what stretches it's kind of like the analogy we like to use it's
the T-bills or the money market front of Bitcoin yeah I want to be clear it's not risk-free of
course but yeah so there's risk to it but what's really interesting is that the yield 11.5 is like a market determined rate
um so that's very interesting and when you compare kind of the risk adjusted opportunity
between stretch and lending rates on chain in our lens it's just so much better. So we think that stretch,
like as we bring stretch on chain,
we think it will really redefine
the hurdle rate on chain, right?
And stretch will be the rate that you need to beat
in order for you to make like an investment
outside of kind of like T-bills.
But it's important to note that stretch
is not like lending rates in which it's that protected
that's fair i think hurdle rates a cleaner way to say it than than risk-free rate so is the reason
why this hasn't happened in the past is just because stretch is so new and we just haven't
had that off-chain liquidity those off-chain i guess guarantees or security. Like why the yield is so high?
Well, yeah, why we haven't seen
Bitcoin-based credit work in DeFi,
right? At least not to any
kind of scale. I mean, it's
kind of what I was touching on earlier. It's just that
from a demand side, because
stretches are unsecured credit,
it requires
more counterparty risk that
DeFi people are not used to.
And then from the lending liquidity side, it's $5 billion in such today.
And it's very hard to kind of scale to this scale on chain.
That makes sense.
So yeah, let's talk about what you guys are building then, because how do you plan on
scaling? I know you guys are going with more of a stablecoin design.
Why go that path as opposed to just starting off with the plain-jane tokenized stretch?
Yeah, so we have a two-token model like USDA and USDE.
We have USDAT and SUSDAT. SUSDAT today is a vault that is backed with stretch.
So users can first access our products through USDAT, which is a stable coin. They can stake it.
When they stake it, we would sell the US treasury that backed the stable coin and we would offer
and pay and buy stretch. It is important to note that when users
stake the asset, they are going to be taking on the volatility of stretch for us. So essentially
for the first part of Saturn, when users stake, you're essentially buying tokenized stretch.
That makes sense. So what is that process like on the backend? I'm just curious,
So what is that process like on the back end?
I'm just curious, right?
Because how quickly can you guys turn around and make that trade?
You kind of have to wait for markets to be open, right?
Yeah.
So generally it takes us around one or two days to kind of off ramp the money, buy, stretch, and execute it.
And all of the off-chain components for us will be like we're working with Galaxy.
So they will help us off ramp. Theychain components for us will be like we're working with Galaxy. So they will help us off-ramp.
They'll execute for us.
And we're working with ClearStreet on our custodian.
I mean, like from the basic, it's a fairly basic design.
Yeah, I'm just curious how the process has been so far.
has been so far i'm sure there's some hiccups that i'm not thinking about but is there any uh
I'm sure there's some hiccups that I'm not thinking about.
special like nature to the peg design or anything like that that people should be aware of
yeah i mean for now the staked asset will be pegged to stretch so if stretch falls the peg will
fall um so kind of like the first value prop of saturn is to make stretch programmable and
composable on chain and. And so this is two
points that's very important. First is we need to build the native on-chain liquidity for stretch.
And second, we want to make stretch composable and integrated with different DeFi protocols on-chain.
So for example, with Saturn, we're going to work with like Morpho in which we allow users to loop the asset right the LTV on
traditional brokers for stretch is 50 percent for us we can have an 86 percent Morpho market
and users can do this up 3x 4x or 5x right and at a sharp ratio that like that strc offers
a three to four x sgsdat will be 30 around, like 20 to 30%, which is a higher Sharper, like which is a higher Sharper ratio than even Bitcoin itself.
The second protocol that we're going to integrate with Pendle, right, you can really trade where the yields of stretch goes with the YTs.
And then you can lock in the yields for the PTs.
And then third, we're working very closely with strata and we're going to risk
tranche even stretch. We're going to create a senior tranche and a junior tranche. The senior
tranche will pay a risk premium to the junior tranche and the junior tranche will take on
volatility of this senior tranche. And in doing so, you create this 7 to 7.5 yield bearing senior tranche with almost no volatility while you create essentially a leveraged stretch position, a junior tranche that pays 18 to 20%.
Wow, that's exciting, man.
I mean, there's a lot of things you can do once you're starting with a base rate of 11.5%, right?
That's super interesting.
I'm excited to trade the rates over on Pendle.
I think having that as a native YT would be super interesting like the uh i'm excited to trade the rates over on pendle i think having
that as a native yt would be super interesting exactly like i think one of the biggest trade
with stretch is like re-peg trades right like when yeah falls you want to be able to long
like long back the re-peg in a more capital efficient way. So one way is you can leverage stretch.
Other way is you can buy the junior version of SUS DAT.
Third, you can buy the YT
because you know strategy with increased rates, right?
So we unlock more capital efficient ways
for you guys, for people to trade stretch.
Yeah, it's all aspects of it too, right?
It's not just the yield.
It's betting on the yield changing. It's betting on the re-peg. That's really interesting.
However, volatility as we bring it on chain really creates these different types of trades as we integrate with like Pendle, Strata, and even more for itself.
So it's actually an opportunity for other investors to take advantage of.
As they should, right?
I mean, that's the whole idea of DeFi is these different building blocks you can take apart, put together in new ways and plug into already existing systems.
That's really cool. How has the response been? I'm just curious from, I'm actually curious
if the response has been more favorable from like crypto natives or people from the traditional side.
So obviously I think there's a lot of education that we need to be told.
Yeah. For the traditional finance side, they're very used to preferred equity structure.
However, essentially what backstretch is the Bitcoin on the balance sheet.
So for them is really understanding Bitcoin as a collateral.
And if you look at the S&P report on MicroStrategy, they viewed Bitcoin essentially as negative capital.
So how do you price Bitcoin as a collateral is very important.
On the other hand, when you come on chain, on chain capital allocators really appreciates
Bitcoin.
They understand Bitcoin as a collateral.
However, they don't understand or they're not as familiar with like preferred equity
structure type credit.
So it's really kind of teaching both sides,
kind of like what the other side is good at. Based on our private beta and then the institution
that's working with us today, it seems like the funds or the institution that is kind of on both
side is getting it first, while it takes more time for more crypto native or more
traffic native kind of investors to learn more. It makes a lot of sense, right? And you have to
draw that line between where you abstract away the complexities, but still educate enough that
people feel comfortable with taking on the risk. It's delicate, I'm sure, especially
when you're dealing with such somewhat complicated financial instruments and trying to have this
whole new lens of bringing it on chain and then abstract or taking away a certain of the aspects
and bring them all together again. So I don't envy you. I'm sure that's been the challenge.
again. So I don't envy you. I mean, I'm sure that's the, it's been the challenge.
Yeah. It's really balancing out kind of yield and stability of the asset. Right. I think
one of the things, or one of the hardest thing that we realized was that most on-chain capital
allocators, like I was saying earlier, it's very familiar with like the secured kind of credit.
Right. Yeah. Stretch is not a secured credit. So really educating them on kind of credit right yeah but stretch is not a secured credit so really educating them on
kind of unsecured credit the preferred equity structure what the protection is there is very
important right like like even though stretch is unsecured but as what we were talking about
earlier it's very safe and you can monitor this risk in real time. And you can trade and manage your position because of the liquidity of the asset.
Yeah, definitely.
I'm actually curious, have you had any contact with Strategy themselves?
I'm sure they're pretty excited about any types of buyers of Stretch and probably want to elevate them.
Yeah, so we have been in contact with the strategy team since
late early late last year um we were kind of like the first team to be building on stretch
and i think the strategy team is really becoming kind of like the platform layer of how we envision
it to be so there are going to be more and more companies building on top of stretch
distribute stretch building different products we're seeing this in real time.
There's a few protocols like us building on stretch and DeFi,
but there's also a lot of startups in TradFi and Fentech also utilizing stretch.
Right. There's ETPs, there's funds being created, ETFs.
So there's like a lot of innovation that's actually happening on stretch and the
ecosystem is
really building up um so i think we're really early i think stretch will be integrated into
every part of d5 every part of chatfi um and it's really just um an important tool to unlock more
access and more of the capital base to Bitcoin.
Yeah, I like the way you're thinking about it. I know Bitcoiners talk about this hyper
Bitcoinization. You're looking at like hyper stretchingization or something like that,
where that becomes that hurdle rate. Do you think that is the case? If you look out 5,
10, 20 years from now, that's that hurdle rate that everyone has to get
over i mean are like our savings accounts just cooked at that point i mean for us who believes
in bitcoin stretches obviously kind of the hurdle rate right it's the best risk adjusted rate there
is um and as we go into the future like we need to understand that this 11.5% yield, the spread between stretch and T-bills, this premium is essentially the risk premium that the market puts on Bitcoin as a collateral.
I personally think that this 11.5% will drop to 7, 6, 5, 4,
and ultimately converge to kind of like the TBO rates down the road.
That's a good point.
I think that is farther down the line.
It's funny.
It's almost like junior and senior tranches themselves,
depending on how you look at it but exactly actually i was talking with a lot of our clients
depending on how you look at it.
Exactly.
Actually, I was talking with a lot of our clients,
and it's like micro strategy stock like like the strategy stock is actually the junior tranche of
bitcoin and is the senior tranche of bitcoin if you think about it it really makes sense right
the junior tranche takes on the volatility of the senior tranche. Sure. Senior tranche pays like this fixed yield to its capital allocator.
Man, that's super interesting.
I think we're only at the beginning, like you said.
I think it's really early because it does take time to start bringing these things on
chain, but I'm excited.
I'm excited to see what people build with it, especially because more money Legos is
a good thing.
Yeah. What do you see as the next steps for you guys as far as roadmap items go?
Is there anything you're excited about coming out soon?
Yeah. So we're currently in private beta. Our public launch will be in 10 days.
And once we launch, we will integrate with Morpho, Pendo and Shrata.
So we will essentially be creating more derivatives,
more tranche products off Stretch.
And ultimately, going back to what Stretch did for Bitcoin,
which has increased its investor base,
we're going to increase the investor base that used cases of Stretch.
And ultimately, all of this capital would flow back to Stretch,
which ultimately flows back to Bitcoin.
I like that. Oh, sorry. Go ahead. this capital would flow back to stretch which ultimately falls back to bitcoin one of the one of the questions that i get asked a lot is where is the marginal capital that will flow into
bitcoin and if you're in this stretch ecosystem or the micro strategy ecosystem it's very clear
that stretch will become one of the most important asset for Bitcoin.
Absolutely, man. And the way you put it, I think you're right in that. Yeah, I know a lot of people that don't hold Bitcoin, but they would probably want to trade the rates or they want to trade
the peg. And I think that just brings more, like you said, more capital buyers,
more people that are willing to put their money and trade certain aspects of this. And I think that's just all good because it all goes back to Bitcoin in
the end. Exactly. Love it, man. But yeah, I think that's all the questions I had. Is there anything
you wanted to touch upon? Anything we didn't talk about? Yeah, I mean, I think I just want to
reiterate, I think what strategy is doing is really bring Bitcoin back
into TradFi and creating different securitized version of it with different risk, different IRR
and risk profiles. And what they're doing is really unlocking the entire capital base for Bitcoin.
And the goal of Saturn is to bring this off-chain Bitcoin finance market back on
chain and deliver kind of digital credit to the world with digital rails. I like it, man. It's
bringing it home. It's bringing it to the people that probably want to trade it and want to hold
it anyway. So I love the vision. Thanks, man. Well, where should folks learn more about Saturn?
How can they track what you guys are building?
Yeah, so please follow us on X, Saturn underscore credit.
Or you guys can follow me on X, which is Kevin LHR88.
Awesome, man.
Well, thanks, everybody, for tuning in.
And until next time, stay safe.
Thanks for having me.
Likewise, man.
Thanks. Thank you.
