Bitcoin Magazine
Digital Credit: Strategy World Research Note For Institutions, Corporations, and Operators
I went to Strategy World last week. On the Bitcoin side, this conference might as well have been called “Stretch World.” STRC (Strategy Variable Rate Perpetual Stretch Preferred Shares) was the main item of discussion. SATA, another variable rate digital credit instrument issued by Strive, was also frequently mentioned.
Here are my thoughts, mainly addressed for institutional investors, corporations, operators, and analysts in the Bitcoin space
The Most Efficient Bitcoin Onramp
Strategy has decisively gone all-in on STRC, aiming to turn STRC into the biggest success story ever. The widespread adoption of STRC is potentially the most effective vector for Bitcoin adoption ever. To really understand why, we need to understand two things.
First, STRC’s value proposition is very easy to communicate to anyone within 10 seconds. Even though Strategy is probably not going to pitch it this way, most informed people think of STRC as a high yield cash alternative. Note that “cash alternative” and suggestions of being a “money market fund” incurs certain legal baggage from the use of such terminology.
But this is largely the economic effect of STRC, since it is designed to trade very close to its $100 par price while throwing off high yields (now 11.5%, though this is a variable rate instrument so it will change). Compare this very simple value proposition—high yield cash surrogate—to that of bitcoin’s. The median individual (and I’d argue up to 90% of individuals) will choose STRC over bitcoin. In fact, STRC does something that the spot Bitcoin ETFs never could, because STRC turns bitcoin into something that better meets the everyday needs of most people.
The second point is that Strategy uses the dollars raised by selling STRC to buy bitcoin, so someone buying STRC from Strategy’s ATM offering is effectively causing that money to go into bitcoin. Of course, we must not get the idea that every dollar invested in STRC is a dollar invested in bitcoin, since it is possible for one to buy the STRC shares from another STRC holder, who will likely not use that money to buy bitcoin. The point is that STRC opens the bitcoin market to buyers who would not consider or understand the value proposition of bitcoin.
Taken together, I believe STRC is the most efficient bitcoin onramp ever created. It may not be the onramp that most OG Bitcoiners imagined, but it is ultimately the one that works for the most people that can attract the most capital.
The capital STRC is drawing in is honestly pretty insane. It was the largest IPO in 2025. And it was a preferred stock! Since then almost an additional billion dollars have been issued via the ATM program. The ATM issuance makes up for 19% of STRC shares outstanding today. Over $3 billion has flowed into bitcoin thanks to STRC.
At Strategy World, multiple companies announced they were using STRC as a treasury asset. This should not be surprising. Corporations need to park working capital and STRC is easily the best risk-adjusted vehicle for doing so. Corporations have bought each other’s commercial paper for a long time, but the yields on these are low and there is no tax advantage.
STRC fixes this. It’s the best bitcoin onramp because it is palatable to the highest number of entities.
Layer 3 and Digital Money
To me, BTC is already digital money, and Layer 3’s and Layer 2’s denote technical infrastructure to scale the portability of BTC (ie. Lightning or Ark). So this terminology has always seemed problematic to me, but it is what is used (and likely what will stick) so we will just roll with it.
Saylor calls bitcoin “Digital Capital”. This is Layer 1. On top of that, STRC and SATA and other credit instruments issued by Bitcoin treasury companies would be Layer 2, or “Digital Credit”. Digital Credit strips away the risk and upside of bitcoin, and the excess risk and upside is absorbed by the common equity. The structure, as we covered above, provides an optimized form of indirect bitcoin exposure that is more palatable to the median investor.
Finally, using Digital Credit, one could create “Digital Money” or Layer 3. Digital Money, under this framework, is effectively a savings account or stablecoin token or fund that has stripped the volatility to nearly 0 while passing off much of the yield from Digital Credit. This can be done using a number of different techniques that involve risk management, buffers, and tail hedges, but I will not elaborate here. The core challenge of creating these seems to be in choosing the optimal structure that balances legal compliance with profitability for the Layer 3 issuer. The actual trading and risk management is trivial.
Layer 3 is so interesting because it is probably how Digital Credit gets an order of magnitude boost in its distribution and addressable market.
You see, even though some people would like to hold STRC or SATA, they might not be able to because they are unbanked or lack a U.S. brokerage account. They might also find the possibility of the last bit of volatility unpalatable. The Digital Money concept could address both of these pain points, and bring bitcoin to many more marginal pools of capital. The endgame would be if Digital Money can be used as a spending account, where users and merchants can pay and be paid in Digital Money.
In the extreme long run, assuming ample distribution of Layer 3 Digital Money and minimal market frictions, the nominal return of these Digital Money instruments would probably converge with the bitcoin CAGR, which would permanently close the bitcoin-fiat carry trade done by Bitcoin treasury companies. This to me is the most likely form of Hyperbitcoinization.
Companies that are working on Layer 3 solutions deserve a close look from VC.
(Levered) Digital Credit as a Risk Parity Sleeve
Risk parity is a portfolio strategy popularized by Ray Dalio years ago at Bridgewater. It aims to equalize the risk contribution of different assets, taking advantage of the diversification free lunch offered by holding de-correlated assets. The idea is that if bonds generate a third of the volatility of stocks, then a risk parity strategy might go 3x long bonds so that the contribution of portfolio risk from the bonds is identical to that of stocks (we are missing some covariance math here, but this is the gist).
Risk parity basically levers up the least volatile and most uncorrelated assets so that it can serve as a cushion or return driver, depending on market regimes. Some readers might recognize that this is related to the “all weather portfolio” concept. Even though risk parity has its faults (the whole thing is synthetically short volatility and short correlation, which introduces fragility at tails), it has found a place amongst asset allocators.
Digital Credit is very non-volatile. If STRC behaves like the instrument it is engineered to be, then its realized volatility should look closer to short-duration credit than to equity, long-term bonds, or commodities. In short, cash-like but with positive real returns.
A risk parity allocator can then scale up STRC exposure without blowing up portfolio volatility. And unlike cash or front-end T-bills, STRC delivers meaningful positive carry while staying price-anchored to par. In short, it is an excellent supplement to a risk parity portfolio’s credit allocation.
Leveraged Digital Credit as a fund concept was mentioned in a presentation, along with “buffered” Digital Credit (for instance a 50/50 split between STRC and T-bills for lower yield but less volatility). Both have potential.
A Secondary Market Carry Trade
One interesting trade that can be done in this context is to borrow at lower rates and buy Digital Credit yielding higher rates. The simplest implementation is via margin at a brokerage. Given a margin rate of 8% compounded daily, STRC that pays 11.5% with monthly dividends can still earn a positive carry after paying for the margin. Margin debt is ultra-low duration and callable, so one cannot be too levered up on it or else a bigger dip in the STRC price might lead to a margin call and liquidation.
It might be possible to pair trade SGOV and STRC to earn the spread, but this depends on borrow rates for SGOV.
I think a better way is to finance with box spreads. This gives a cost of capital at near the risk free rate, and it is a “bullet bond” rate that is paid at maturity (expiry of the box spread). This carry trade done by retail and institutions alike in the secondary market is sure to bring more liquidity and opaque leverage to the ecosystem. Long term opportunity, and also risks worth watching.
Digital Ouroboros and Incestuous Credit
Here is a concept I heard at the conference:
“Imagine if Strategy bought SATA for its cash reserves and Strive bought STRC for its cash reserves. Both sides have more yield right? More value is created!”
At this point we are probably getting into the realm of things we should not do. Cash reserves are meant to give the perception that dividends will be supported even if the company has hard times (read: Bitcoin bear market). Unfortunately, if the cash reserve is in Digital Credit which sells off and de-pegs in a Bitcoin crash, then the reserve wouldn’t really be much of a reserve.
Also, keep in mind that the cash reserve is partly responsible for a perception of mitigated risk, which compresses credit spreads. If the reserve was in fact not able to mitigate risk of Digital Credit because the reserve was itself Digital Credit, then the Digital Credit instrument that is supposed to be supported by the reserve will also fail more quickly under stress.
Like the snake who eats its own tail and consumes itself.
I don’t foresee such incestuous credit use in the major issuers, but something like this might appear in smaller treasury companies that are desperate for more income. Using STRC for working capital is one thing (and suitable in most cases). A cash reserve meant to protect credit investors is a different thing. This is perhaps another possible risk worth watching.
An interesting thought would be a sufficiently tail hedged Layer 3 being the reserve. As long as downside correlation to BTC is removed, it probably works.
Conclusion
Strategy World was wonderful. I highly recommend it.
Disclaimer: This content was written on behalf of Bitcoin For Corporations. This article is intended solely for informational purposes and should not be interpreted as an invitation or solicitation to acquire, purchase or subscribe for securities.
This post Digital Credit: Strategy World Research Note For Institutions, Corporations, and Operators first appeared on Bitcoin Magazine and is written by Allard Peng.
