Michael Saylor0:05
Thank you for allowing me to speak with you today. I'm going to talk about merging TradFi and DeFi, Bitcoin and crypto merging, and yield coins coming to stable coins. This is my first time at Consensus, so I wanted to wait until I had something interesting to say. I want to talk about digital credit, which is based on digital capital. To create the best credit, you need the best performing asset—Bitcoin has been outperforming the S&P, gold, and Nasdaq. We wondered if we could carve a credit instrument out of Bitcoin. Bitcoin's 40% volatility is too high for most investors, so we use capital gains to fund a credit dividend. For example, from 30% returns we extract 11%, or from 6% real estate we pay 3%. Bitcoin is the highest performing capital, so we can pay the highest dividend. You also need a lot of assets—my company has about $68 billion in capital and an $85 billion enterprise. The killer app for Bitcoin is digital credit: we sell credit into traditional capital markets and offer a yield. For every dollar of capital, we sell about 20 cents of credit per year. MSTR trades more than IBIT and has massive derivative support. To create credit, we strip currency risk, credit risk, duration risk, damp volatility, and distill a yield—like turning crude oil into kerosene. We extract the first 11% and give people stable compounding without massive drawdown. The excess volatility goes to equity, making MSTR amplified Bitcoin and STRC Bitcoin credit. Since August 2020, Bitcoin is up 40%, MSTR up 60%, and STRC is the credit. We straddle both sides: leveraged performance seekers and comfortable yield seekers. STRC offers double-digit returns, tax deferral, low volatility, and capital preservation. If you don't need money for 4 years, buy Bitcoin; if you need it in 4 months, use STRC. Using unrealized capital gains to pay dividends creates tax-deferred return of capital—we inadvertently created the most efficient generator of tax-deferred fixed income. STRC has $375 million daily liquidity, volatility reduced from 40 to 3, $8.5 billion AUM growing 340% a year. It's the biggest and most liquid preferred stock in the world in 8 months. In the last 6 months, Bitcoin dropped 37% while STRC paid 6.4% dividends and held par. In the last 3 months, STRC traded in range 100% of the time. Liquidity grew 7X in 5 months. Money markets pay 3.5%, private credit 8.5%, STRC pays 11.5%—18% tax-equivalent in Miami. It's the risk-free rate in crypto at 11.5%, creating a massive arbitrage opportunity. With 2% vol, you can 10x leverage and capture 95% yield. STRC has the highest Sharpe ratio of any credit instrument, outperforming Nvidia and all hedge fund strategies. It's liquid, zero-fee, transparent, updated every 15 seconds. Digital credit will transform 1-10% of the $300 trillion credit market. STRC is distributed through all retail brokers (Schwab, Robinhood) and is 80% retail. Corporations use it for treasury. It's number two in BlackRock and VanEck credit indexes. The most interesting part: digital credit is the stepping stone to digital money and digital yield. We've converted volatile digital capital into a 3-vol, 11% yielding credit instrument stabilized by $60 billion in equity. Now, at layer three, you can create digital money or yield with programmed volatility, yield, liquidity, and currency. From 3-vol 11% credit, you can step down to 0-vol 5% money or leverage up to 25% yield. The stablecoin market ($350 billion) needs yield. Digital credit competes with treasuries but offers net yield. STRC is over-collateralized with $5 of capital per dollar. We update risk every 15 seconds and publish credit models. Capital flows to superior yield; digital yield backed by STRC beats DeFi yield. DeFi innovators (Apex, Hermetica, Kraken, Ondo, Pendle, etc.) are moving 10X faster than TradFi, reaching $270 million in 8 weeks. Sales grew from $1.2B in March to $3.2B in April. Digital credit bridges Bitcoin and crypto, TradFi and DeFi. Bitcoin is digital capital, STRC is digital credit, and apps can be built on top. Yield coins are 0-vol, 8% yielding, backed by Bitcoin. There's potential to build yield coins in yen or Swiss francs, or 24% yield coins with staking. Our focus is to make STRC a $100 billion AUM instrument with sub-2 vol. We invite you to create hundreds of digital money and yield apps, keep 200-300 basis points, and build proprietary products. This will power the digital assets industry to 10x or 100x development. Thank you.
