[ { "speaker": "Speaker 1", "text": "I'm delighted to be with you today and uh the topic of my presentation is is the latest developments in digital credit, digital yield, digital money and the digital transformation of the" }, { "speaker": "Speaker 1", "text": "capital markets. I think the last 12 months have been extraordinary and uh not the least of which re- for the reason that the digital credit industry has been born in the last 12 months." }, { "speaker": "Speaker 1", "text": "Uh and I want to talk first about digital credit, why it's even possible." }, { "speaker": "Speaker 1", "text": "Uh digital credit is a killer application of digital capital. Bitcoin represents ideal capital." }, { "speaker": "Speaker 1", "text": "It represents engineered capital. It represents digital capital." }, { "speaker": "Speaker 1", "text": "And it was created, as you know, by putting together a set of technologies, proof of work, public key cryptography, peer-to-peer networking, distributed timestamping, and by putting together a set of" }, { "speaker": "Speaker 1", "text": "components that had been around, Satoshi was able to create an ideal capital asset, an asset that's non-sovereign store of value, bearer instrument without counterparty risk." }, { "speaker": "Speaker 1", "text": "Digital credit, in a similar way, it's engineered credit. It's ideal credit." }, { "speaker": "Speaker 1", "text": "It's digital credit. How do we build it?" }, { "speaker": "Speaker 1", "text": "Well, we start with some off-the-shelf techniques." }, { "speaker": "Speaker 1", "text": "Listed public companies, they've been around for 100 years." }, { "speaker": "Speaker 1", "text": "A capital asset on the balance sheet, we chose Bitcoin." }, { "speaker": "Speaker 1", "text": "Uh a perpetual preferred equity." }, { "speaker": "Speaker 1", "text": "Preferred equities have been around for hundreds of years." }, { "speaker": "Speaker 1", "text": "Uh we used a monthly variable dividend." }, { "speaker": "Speaker 1", "text": "It's been available and possible, but no one ever thought to put it into a credit instrument like like STRC." }, { "speaker": "Speaker 1", "text": "We use a standard tax treatment called return of capital." }, { "speaker": "Speaker 1", "text": "It's been around for more than 100 years." }, { "speaker": "Speaker 1", "text": "And then we combined all those things with a shelf registration and ATM program. Those have been around a long time. Just no one had ever thought to put it together with a credit instrument." }, { "speaker": "Speaker 1", "text": "And by combining all of these things, we were able to create digital credit." }, { "speaker": "Speaker 1", "text": "What is credit?" }, { "speaker": "Speaker 1", "text": "What is capital?" }, { "speaker": "Speaker 1", "text": "Well, the world's built on capital. The world runs on credit." }, { "speaker": "Speaker 1", "text": "Capital Capital is for someone that wants to make a long-term investment without cash flows." }, { "speaker": "Speaker 1", "text": "And they're going to bear all the currency risk, all the duration risk, all the volatility." }, { "speaker": "Speaker 1", "text": "Uh they're going to bear all the uncertainty for a long period of time because they have a low time preference." }, { "speaker": "Speaker 1", "text": "And there are a set of people and a certain a set of investors that want that capital investment." }, { "speaker": "Speaker 1", "text": "But credit is for people that have a much shorter time preference. They don't want the risk." }, { "speaker": "Speaker 1", "text": "They don't want the wait." }, { "speaker": "Speaker 1", "text": "They want steady cash flows. They don't want the volatility. They don't want the anxiety." }, { "speaker": "Speaker 1", "text": "They have immediate bills to pay." }, { "speaker": "Speaker 1", "text": "And they want that cash flow now." }, { "speaker": "Speaker 1", "text": "And so our company strategy converts capital into credit." }, { "speaker": "Speaker 1", "text": "We take the BTC commodity and we convert it into a currency like the US dollar or the euro." }, { "speaker": "Speaker 1", "text": "We stretch it to USD." }, { "speaker": "Speaker 1", "text": "We take the risk that's one for one and then we over collateralize the strip it away." }, { "speaker": "Speaker 1", "text": "If you collateralize something five to one, that means that the capital asset can fall 80% and you're still fully collateralized. So, the capital investor has lost 80% of their collateral, the" }, { "speaker": "Speaker 1", "text": "credit investor is still protected. So, you're stripping risk." }, { "speaker": "Speaker 1", "text": "When you do that, you damp volatility." }, { "speaker": "Speaker 1", "text": "Uh the volatility of Bitcoin has been 40." }, { "speaker": "Speaker 1", "text": "We strip that volatility away when we strip the risk away by targeting a a standard value." }, { "speaker": "Speaker 1", "text": "And from that, you distill, extract a yield, a cash flow." }, { "speaker": "Speaker 1", "text": "And you do that while compressing duration. Instead of waiting a decade in order to get a capital gain, you get a yield within a month." }, { "speaker": "Speaker 1", "text": "And so, the world's built on capital, the world runs on credit." }, { "speaker": "Speaker 1", "text": "We designed a lot of credit instruments, but after many, many tries, we finally discovered STRC." }, { "speaker": "Speaker 1", "text": "And STRC is built to provide the benefits of equity investors like double-digit returns and tax efficiency with the benefits that credit investors get like low volatility and capital" }, { "speaker": "Speaker 1", "text": "preservation." }, { "speaker": "Speaker 1", "text": "So, if you can combine all those together, you have the best of the credit world and the best of the equity world in a single instrument." }, { "speaker": "Speaker 1", "text": "Digital credit appeals to people that might like private credit. Private credit is the is the reach for yield." }, { "speaker": "Speaker 1", "text": "People that don't like money markets, they don't like investment-grade bonds or junk bonds, they buy private credit." }, { "speaker": "Speaker 1", "text": "There's 3.5 or more trillion dollars in private credit." }, { "speaker": "Speaker 1", "text": "But, private credit is a liquid, it's opaque, it's heterogeneous." }, { "speaker": "Speaker 1", "text": "It's a portfolio of a thousand private loans." }, { "speaker": "Speaker 1", "text": "It's discrete." }, { "speaker": "Speaker 1", "text": "It's restricted to qualified investors." }, { "speaker": "Speaker 1", "text": "There's a high fee associated with it." }, { "speaker": "Speaker 1", "text": "And we just saw in the past month that private credit markets have been melting down." }, { "speaker": "Speaker 1", "text": "They got hit with a rash of redemptions. They couldn't meet the redemptions." }, { "speaker": "Speaker 1", "text": "And yet it's 3 and 1/2 trillion dollars of money that wants to invest in these instruments." }, { "speaker": "Speaker 1", "text": "Digital credit, it's liquid, it's transparent, it's homogeneous, it's scalable, it's accessible to everybody, and there's no fee." }, { "speaker": "Speaker 1", "text": "And so, if you look at this, you could see that digital credit, even if it even if it just transformed 10% of the private credit market, would be 350 billion dollars in today's dollars." }, { "speaker": "Speaker 1", "text": "Digital credit's meant to appeal to lots of different investors." }, { "speaker": "Speaker 1", "text": "It's meant for retail investors." }, { "speaker": "Speaker 1", "text": "It's It's meant for digital native or crypto investors." }, { "speaker": "Speaker 1", "text": "It appeals to hedge funds and hybrid investors." }, { "speaker": "Speaker 1", "text": "It appeals to institutional credit investors." }, { "speaker": "Speaker 1", "text": "And it's also an appeal to corporate treasurers and CFOs that want to hold some high-performance monetary asset on their balance sheet." }, { "speaker": "Speaker 1", "text": "A lot of people were surprised when we used a preferred stock to do this, but it turns out that digital credit is just the reemergence of preferred capital after 100 years." }, { "speaker": "Speaker 1", "text": "If you go back to the 19th century and think about the last major capital development effort, which was railroads, most railroads and a lot of the early industries during the Industrial" }, { "speaker": "Speaker 1", "text": "Revolution, they were financed by preferred stocks." }, { "speaker": "Speaker 1", "text": "It used to be 20 to 40% of the capital structure of corporations." }, { "speaker": "Speaker 1", "text": "In the 20th century, preferred stocks fell out of favor. It's almost like they were forgotten." }, { "speaker": "Speaker 1", "text": "And now in the 21st century, we've reintroduced the idea of preferred credit or preferred stocks back into the capital markets." }, { "speaker": "Speaker 1", "text": "Now, how do you create it?" }, { "speaker": "Speaker 1", "text": "People always wonder, how do you create an 11% yielding credit instrument? Well, you start with a performance of asset classes. And if you look at the performance of Bitcoin over the last 5" }, { "speaker": "Speaker 1", "text": "years, it's up 38% a year, which is much better than gold or the S&P. Real estate's up 6% a year." }, { "speaker": "Speaker 1", "text": "Money markets are up 3% a year." }, { "speaker": "Speaker 1", "text": "You can't create a credit instrument that pays a dividend higher than the capital return of the capital that it's that the credit's being invested in." }, { "speaker": "Speaker 1", "text": "So, as you can see, the theoretical highest yield you could ever pay on gold-backed credit would be 16%." }, { "speaker": "Speaker 1", "text": "The theoretical highest yield you can pay on real estate credit is 6%." }, { "speaker": "Speaker 1", "text": "On the other hand, with Bitcoin, the theoretical yield is 38%." }, { "speaker": "Speaker 1", "text": "So, if you think about the theory of asset-backed credit or the theory of digital credit, what you do is you take the capital gain you expect in the capital asset, and then you pay a portion of it" }, { "speaker": "Speaker 1", "text": "to the credit investor." }, { "speaker": "Speaker 1", "text": "If you expect 30% in Bitcoin, you could pay 11% to the credit investor." }, { "speaker": "Speaker 1", "text": "The excess yield, uh the in this case, the 19% yield spread between 30 and 11, that goes to the equity." }, { "speaker": "Speaker 1", "text": "And so, the common equity investor gets the gets the actual carry or the yield boost." }, { "speaker": "Speaker 1", "text": "The credit investor gets that first 11% strip of return with risk management principal protection." }, { "speaker": "Speaker 1", "text": "You could do what we've done in theory with gold, with real estate, or with the S&P index, but you wouldn't be able to pay as high a dividend because those asset classes don't perform as well." }, { "speaker": "Speaker 1", "text": "So, here's another way to look at it." }, { "speaker": "Speaker 1", "text": "Uh Bitcoin is something for people that want to hold for 10 years. It's a roller coaster." }, { "speaker": "Speaker 1", "text": "It's got 30 ARR. It's got 30 or 40 volatility." }, { "speaker": "Speaker 1", "text": "Um you're going to have years where you're up, years when you're down." }, { "speaker": "Speaker 1", "text": "You're going to have no cash flow for a decade." }, { "speaker": "Speaker 1", "text": "Digital credit simply strips the first 11%." }, { "speaker": "Speaker 1", "text": "You return it to the credit investor, and you get a very comfortable ride." }, { "speaker": "Speaker 1", "text": "Now, if you look at that chart, you see we're just doing signal processing on uh on a financial signal." }, { "speaker": "Speaker 1", "text": "Where does the excess volatility go?" }, { "speaker": "Speaker 1", "text": "Where does the excess return go?" }, { "speaker": "Speaker 1", "text": "It goes to the equity." }, { "speaker": "Speaker 1", "text": "And so, we created digital credit off of digital capital, and then that creates digital equity." }, { "speaker": "Speaker 1", "text": "As it turns out, all three of these assets are created with digital intelligence." }, { "speaker": "Speaker 1", "text": "We couldn't create digital credit without digital intelligence. So, if you're looking for a killer application of AI, it's taking digital intelligence and working on digital assets or digital" }, { "speaker": "Speaker 1", "text": "capital to create digital equity and digital credit." }, { "speaker": "Speaker 1", "text": "And you can see it at work here." }, { "speaker": "Speaker 1", "text": "In fact, we've done it with our own securities." }, { "speaker": "Speaker 1", "text": "So now, if you think about how this sits for a an investor, if your time horizon is less than 4 years, if you need the money in a month or a quarter or a year, you probably want to" }, { "speaker": "Speaker 1", "text": "hold the credit because you don't want any uh, in the principal." }, { "speaker": "Speaker 1", "text": "If you don't need the money for a decade and you don't want counterparty risk, if you want complete self-sovereignty, you should buy the Bitcoin, the commodity." }, { "speaker": "Speaker 1", "text": "And if you, on the other hand, have a long time horizon, but you want to bet on the future of digital capital and digital credit in an amplified way, you buy the equity, the digital equity" }, { "speaker": "Speaker 1", "text": "instrument." }, { "speaker": "Speaker 1", "text": "Now, lots of people have different views and you have to see Bitcoin as one pole, one polarity, and credit is the other." }, { "speaker": "Speaker 1", "text": "People that want to be completely, uh, without counterparty risk and self-sovereign, they want the commodity." }, { "speaker": "Speaker 1", "text": "But on the other hand, in your life, you buy things all the time from corporations where you rely on the company to perform. When you get in an airplane, you trust the pilot to land" }, { "speaker": "Speaker 1", "text": "the plane. When you buy an iPhone, you trust Apple not to turn off your iPhone." }, { "speaker": "Speaker 1", "text": "When you go to a dentist, you trust the dentist to not stop halfway through the operation." }, { "speaker": "Speaker 1", "text": "Um, the world is full of examples. When you watch a Netflix series, you trust Netflix to let you finish the show." }, { "speaker": "Speaker 1", "text": "When you buy electricity, you you, uh, trust the power company to keep pumping the electricity." }, { "speaker": "Speaker 1", "text": "In fact, I would say there's a lot of people that want unlimited free electricity." }, { "speaker": "Speaker 1", "text": "They do not want to install a nuclear reactor in their backyard." }, { "speaker": "Speaker 1", "text": "And so, what's happened here is we have created a crypto reactor and we're using it to create credit in order to serve a group of people that don't want to to, uh, do this work themselves. They don't want" }, { "speaker": "Speaker 1", "text": "to wait a decade before they actually monetize their investment. They want to consistently monetize the investment every month for 120 months in a row." }, { "speaker": "Speaker 1", "text": "Um, who would do that? A retiree, a 3-year-old, a 12-year-old, a conservative institution, a company that has lots of consistent bills and if they don't make their payroll in 2 months, they get shut down." }, { "speaker": "Speaker 1", "text": "People that if they miss their bills, they go to jail, right? There are plenty of institutions and individuals and investors that can't stand uh they can't take a long duration capital investment." }, { "speaker": "Speaker 1", "text": "For them, they need the credit." }, { "speaker": "Speaker 1", "text": "One serendipitous result we found um while we were engaged in this was that if you finance the dividends from a credit instrument by monetizing an unrealized capital gain, you've created a return of capital" }, { "speaker": "Speaker 1", "text": "dividend and that's tax-deferred." }, { "speaker": "Speaker 1", "text": "Uh to the people backstage, the the timer in front of me is not working. So, I may very well go on forever if you don't turn the timer back on." }, { "speaker": "Speaker 1", "text": "Um Maybe they're being polite. Um That return of capital dividend's been around for more than a hundred years, but it turns out that we were the company that figured out how to scale it" }, { "speaker": "Speaker 1", "text": "by combining the credit instrument with digital capital." }, { "speaker": "Speaker 1", "text": "Now, how's it doing?" }, { "speaker": "Speaker 1", "text": "This is stretch recently. Um Stretch has grown from nothing to eight and a half billion dollars in about 9 months." }, { "speaker": "Speaker 1", "text": "It's currently got 400 million dollars almost of daily liquidity." }, { "speaker": "Speaker 1", "text": "Its volatility has fall fallen to 2.9%." }, { "speaker": "Speaker 1", "text": "The sharp ratio is the high twos." }, { "speaker": "Speaker 1", "text": "It's 4x over collateralized." }, { "speaker": "Speaker 1", "text": "Um here's another chart. Um, this is hyper growth." }, { "speaker": "Speaker 1", "text": "How do you know that a product's working?" }, { "speaker": "Speaker 1", "text": "Well, it's growing 350% a year." }, { "speaker": "Speaker 1", "text": "That's how fast it's growing. Like it's 100% month-over-month growth." }, { "speaker": "Speaker 1", "text": "So, I don't know how long this will be in hyper growth, but right now this is the fastest growing credit instrument in the world, maybe in the decade or the century." }, { "speaker": "Speaker 1", "text": "Um, why is it growing so fast?" }, { "speaker": "Speaker 1", "text": "Well, um, it's growing fast because it's ideal credit. Because it was engineered to provide everything a credit investor would want if you look at it from the point of view of the investor, not from" }, { "speaker": "Speaker 1", "text": "the point of view of the issuer." }, { "speaker": "Speaker 1", "text": "Right? Most credit investor or most credit issuers want to create an instrument that's good for them, that's bad for the investor." }, { "speaker": "Speaker 1", "text": "We started with a blank sheet of paper using digital capital, then we use digital intelligence, and then we designed a credit instrument that's good for the investor, that's the ideal" }, { "speaker": "Speaker 1", "text": "credit instrument." }, { "speaker": "Speaker 1", "text": "Now, how can we tell?" }, { "speaker": "Speaker 1", "text": "Uh, the instrument grew to be the largest preferred stock in the world within eight months. It's now 8.9 billion. I'm showing you the 10 largest preferred stocks." }, { "speaker": "Speaker 1", "text": "If you read the chart, what you'll see is that STRCT a simple thing to remember, STR C." }, { "speaker": "Speaker 1", "text": "The other stocks are C/PN or POW.PR.E." }, { "speaker": "Speaker 1", "text": "If you went and searched for these, you wouldn't find half of them." }, { "speaker": "Speaker 1", "text": "Like you can't even Google them hardly." }, { "speaker": "Speaker 1", "text": "You can How do you buy them and sell them if you can't find them?" }, { "speaker": "Speaker 1", "text": "They're actually institutional products." }, { "speaker": "Speaker 1", "text": "They were never meant to be bought. Some of them, the ones that say OTC, it's illegal for for to buy them. Right? They weren't built for the public investor." }, { "speaker": "Speaker 1", "text": "They were built for an institutional world of traded credit in the 20th century." }, { "speaker": "Speaker 1", "text": "And so, what's the result?" }, { "speaker": "Speaker 1", "text": "Nobody trades them." }, { "speaker": "Speaker 1", "text": "STRC isn't just the biggest preferred, it's actually the most liquid preferred in the world." }, { "speaker": "Speaker 1", "text": "In 8 months." }, { "speaker": "Speaker 1", "text": "Let me say it again, in the world. It's the most liquid one." }, { "speaker": "Speaker 1", "text": "It's not even 12 months old." }, { "speaker": "Speaker 1", "text": "Look Look who it's competing against." }, { "speaker": "Speaker 1", "text": "Wells Fargo, Bank of America, Fannie Mae, City, JP Morgan." }, { "speaker": "Speaker 1", "text": "It's 25x more than the next best one, and it's not a year old." }, { "speaker": "Speaker 1", "text": "Right? It's like It's like Superman as a toddler beating the crap out of everybody." }, { "speaker": "Speaker 1", "text": "And it's because it's Bitcoin powered, right?" }, { "speaker": "Speaker 1", "text": "Now, if you delve a little bit deeper, you'll see that it trades 4 and 1/2% of its AUM every day." }, { "speaker": "Speaker 1", "text": "So, it's not just that it's more liquid and it's bigger. It's actually faster, higher-powered money." }, { "speaker": "Speaker 1", "text": "And it's higher-powered by an order of magnitude." }, { "speaker": "Speaker 1", "text": "And And so, you can see the superior engineering design. Now, what else is highly liquid? Bitcoin." }, { "speaker": "Speaker 1", "text": "The reason digital credit is highly liquid is because digital capital is highly liquid, and the digital equity is highly liquid. And it's not a It's not an accident. They're all correlated to" }, { "speaker": "Speaker 1", "text": "each other." }, { "speaker": "Speaker 1", "text": "If you want to build the one, you have to build If you want a high-energy credit, you have to build it on a high-energy capital asset." }, { "speaker": "Speaker 1", "text": "What else do you want from credit? You want it to be stable." }, { "speaker": "Speaker 1", "text": "And so, you can see in the middle of the crypto or or the bear market here in the crypto winter, Bitcoin peaked in October 6th." }, { "speaker": "Speaker 1", "text": "It was 125,000 a coin." }, { "speaker": "Speaker 1", "text": "It's 38% down." }, { "speaker": "Speaker 1", "text": "STRC is 0%. It's exactly held par." }, { "speaker": "Speaker 1", "text": "And so, what you can see is that the credit instrument is something you can manage the whole principal value." }, { "speaker": "Speaker 1", "text": "The And that's you need an issuer to do that. That's where the company comes in." }, { "speaker": "Speaker 1", "text": "The capital instrument has no issuer, no counterparty, no one's managing it." }, { "speaker": "Speaker 1", "text": "If you're a long-term investor, I would tell you every day buy Bitcoin, don't buy the credit." }, { "speaker": "Speaker 1", "text": "But the truth of the matter is most people aren't long-term investors able to take that volatility." }, { "speaker": "Speaker 1", "text": "They simply want to put their money in a bank account, collect 10 or 11% and not worry about it, let somebody else worry about it." }, { "speaker": "Speaker 1", "text": "And STRC is built for them." }, { "speaker": "Speaker 1", "text": "Um you can see it's seasoning. This is the last 8 months or so." }, { "speaker": "Speaker 1", "text": "And it started off with a rocky start, and it gradually fell into the zone." }, { "speaker": "Speaker 1", "text": "Uh in January, it traded in its target trading range 90% of the time." }, { "speaker": "Speaker 1", "text": "February was a very difficult month. It traded 80% of the time." }, { "speaker": "Speaker 1", "text": "And then in March and in April, it locked in into into place." }, { "speaker": "Speaker 1", "text": "It's been 100% in the trading zone in March and April. So, you can see it's hitting its target range now." }, { "speaker": "Speaker 1", "text": "And of course, liquidity is everything." }, { "speaker": "Speaker 1", "text": "There's no point in me telling you this is a good product if you can only buy or sell 100,000 a day." }, { "speaker": "Speaker 1", "text": "You're not going to get someone to invest a billion dollars in something that trades that that it would take them 10 years to get out of." }, { "speaker": "Speaker 1", "text": "And so, you can see the liquidity here is is grown by a factor of eight in 5 months." }, { "speaker": "Speaker 1", "text": "Again, hypergrowth." }, { "speaker": "Speaker 1", "text": "Right off the charts. There's never a credit instrument that grew in liquidity like this. This is going viral." }, { "speaker": "Speaker 1", "text": "This is a chart of preferreds where you look at the return versus the daily liquidity and you can see STRC is in a class all by itself. It's the supernova of credit." }, { "speaker": "Speaker 1", "text": "And then everything else is on the sidewalk here. It's all illiquid mediocre." }, { "speaker": "Speaker 1", "text": "The result is the velocity of this thing is exploding. This is the demand for STRC." }, { "speaker": "Speaker 1", "text": "It was about a $500 million business per month in January." }, { "speaker": "Speaker 1", "text": "$500 million, call it $6 billion a year." }, { "speaker": "Speaker 1", "text": "In February, we got punched in the face." }, { "speaker": "Speaker 1", "text": "It was a really difficult month, massive Bitcoin drawdown, and it and it fell to 80 million in demand." }, { "speaker": "Speaker 1", "text": "In March, it jumped to 1 and 1/2 1 and 1/2 billion dollars." }, { "speaker": "Speaker 1", "text": "It became an $18 billion a year product." }, { "speaker": "Speaker 1", "text": "Imagine going zero to $18 billion a year in the first year." }, { "speaker": "Speaker 1", "text": "And then in April, it went to 3 and 1/2 billion." }, { "speaker": "Speaker 1", "text": "Multiply 3 and 1/2 billion by 12." }, { "speaker": "Speaker 1", "text": "All of the sudden, zero to $38 billion a year in a run rate. It's not a year old." }, { "speaker": "Speaker 1", "text": "So, clearly, we're in hypergrowth right now." }, { "speaker": "Speaker 1", "text": "May will be interesting, June will be interesting, July, but you might go Google and ask how many products in the world went from zero to $20 billion a year in the first year." }, { "speaker": "Speaker 1", "text": "Aren't many. It's very difficult to do." }, { "speaker": "Speaker 1", "text": "Now, if you come back to this other innovation of shelf registrations, what you can see is before we started selling digital credit, the largest shelf registration on a credit instrument in the world ever in" }, { "speaker": "Speaker 1", "text": "the history of the market was $500 million." }, { "speaker": "Speaker 1", "text": "And then strategy created a $2 billion registration for strike, a $2 billion one for strife, a $4 billion one for stride, and then a $21 billion shelf registration for STRC." }, { "speaker": "Speaker 1", "text": "And so you can see here that that innovation, that idea of a shelf registration on a credit instrument, it was not materially used by anybody in the world in the capital market. And the" }, { "speaker": "Speaker 1", "text": "truth is the US is the leader in shelf registrations. So when I say in the world, I mean they're not doing it in Japan, they're not doing it in Europe." }, { "speaker": "Speaker 1", "text": "The US is the leader and in the US we've just did something which is 40x bigger than the next biggest thing that's ever been tried by anybody. And again, we're not even 1 year old." }, { "speaker": "Speaker 1", "text": "Why? Why is there so much demand?" }, { "speaker": "Speaker 1", "text": "Well, private credit yields 8 and 1/2%." }, { "speaker": "Speaker 1", "text": "Uh you could characterize the entire credit market as uh return-free risk." }, { "speaker": "Speaker 1", "text": "You're getting 80 basis points of uh of yield over this the risk-free rate if you buy investment bonds or corporate bonds." }, { "speaker": "Speaker 1", "text": "You're getting 200 basis points for junk bonds. You're getting three or 400 basis points for private credit that's illiquid." }, { "speaker": "Speaker 1", "text": "It's all taxable." }, { "speaker": "Speaker 1", "text": "And we come up with something which pays 11 and 1/2% that's tax-deferred, that's liquid, that's transparent." }, { "speaker": "Speaker 1", "text": "If you're a taxpayer in Miami Beach, that's the equivalent to a bank account that pays you 18%." }, { "speaker": "Speaker 1", "text": "Now what you see is we've created the short end of the yield curve like the 1-month Bitcoin bond. The the risk-free rate in the crypto ecosystem." }, { "speaker": "Speaker 1", "text": "So, what is the free market rate of capital or the free market cost of capital?" }, { "speaker": "Speaker 1", "text": "It's 11.5% right now." }, { "speaker": "Speaker 1", "text": "And you can see what the what the risk-free rate is in every other currency. 3 2 1 0." }, { "speaker": "Speaker 1", "text": "And now, if you're if you're an investor, you can start to imagine a world where I borrow euros at 2% and I buy STRC at 11% and I keep the difference." }, { "speaker": "Speaker 1", "text": "Or borrow yen at 70 basis points and invest at 11% and keep the difference." }, { "speaker": "Speaker 1", "text": "Right? There's a massive arbitrage here." }, { "speaker": "Speaker 1", "text": "What if you live in New York City?" }, { "speaker": "Speaker 1", "text": "Strike just like a bank that pays you 24% interest in New York City." }, { "speaker": "Speaker 1", "text": "Right? What if you live in San Francisco? 23.1% tax equivalent yield." }, { "speaker": "Speaker 1", "text": "Right? Your money market pays you 3.6%." }, { "speaker": "Speaker 1", "text": "The bank deposits pay you almost nothing." }, { "speaker": "Speaker 1", "text": "Why wouldn't you buy it?" }, { "speaker": "Speaker 1", "text": "Volatility?" }, { "speaker": "Speaker 1", "text": "It's too volatile. You can see we've actually taken the volatility from 13 down to 2.3 through the end of April." }, { "speaker": "Speaker 1", "text": "Our goal is to get it into the ones." }, { "speaker": "Speaker 1", "text": "We've had it in the in the into the one range a few weeks ago." }, { "speaker": "Speaker 1", "text": "The only instruments in the entire credit industry that have a one volatility are money markets." }, { "speaker": "Speaker 1", "text": "Now, it's worthwhile to talk about some financial theory here." }, { "speaker": "Speaker 1", "text": "The Sharpe ratio is defined as the return the return of the instrument minus the risk-free rate divided by the volatility." }, { "speaker": "Speaker 1", "text": "So, it tells you how much you're getting paid for the volatility that you're incurring or the risk that you're taking. What is the risk-adjusted return?" }, { "speaker": "Speaker 1", "text": "When the Sharpe ratio is above one, you're getting paid more in return than the volatility you're incurring." }, { "speaker": "Speaker 1", "text": "And what you can see here is the Sharpe ratio of Stretch is 2.7." }, { "speaker": "Speaker 1", "text": "The best Sharpe ratio of a credit instrument is 0.5. Right? It's 5x better than the next best credit instrument." }, { "speaker": "Speaker 1", "text": "It's 10x better than most credit instruments." }, { "speaker": "Speaker 1", "text": "Your money markets Money markets have a negative Sharpe ratio." }, { "speaker": "Speaker 1", "text": "The The fee charged to you by the issuer or the sponsor or the money market is higher is so high, 20 or 30 basis points, that this is in essence there is no return. It's It's return-free" }, { "speaker": "Speaker 1", "text": "risk. Negative Sharpe ratio." }, { "speaker": "Speaker 1", "text": "Compare digital credit to equity." }, { "speaker": "Speaker 1", "text": "The best equity in the world is Nvidia." }, { "speaker": "Speaker 1", "text": "Nvidia's got a positive Sharpe ratio, 1.89 right now." }, { "speaker": "Speaker 1", "text": "Nobody else in the Mag 7 does." }, { "speaker": "Speaker 1", "text": "None of them return the risk that you're taking." }, { "speaker": "Speaker 1", "text": "Amazon, the volatility is 5x the return." }, { "speaker": "Speaker 1", "text": "Stretch is outperforming them all." }, { "speaker": "Speaker 1", "text": "And it's a credit instrument." }, { "speaker": "Speaker 1", "text": "Imagine Imagine doing that with credit." }, { "speaker": "Speaker 1", "text": "And now let's look at assets." }, { "speaker": "Speaker 1", "text": "The S&P index doesn't return its its volatility. It's got a Sharpe ratio of less than one. Bitcoin It's got a return lower than its volatility right now." }, { "speaker": "Speaker 1", "text": "Nasdaq, same thing. Gold, 0.4. Real estate Real estate's awful, right? It's got high volatility, low return." }, { "speaker": "Speaker 1", "text": "17, you know, 0.17%." }, { "speaker": "Speaker 1", "text": "Really weak. 17 basis points. So, you see, Stretch has got a higher sharp ratio than any of these instruments. In fact, it's kind of like monetary fuel." }, { "speaker": "Speaker 1", "text": "And that means it competes with $300 trillion of dollars of credit, $100 trillion of dollars of equity, and it competes with with real estate." }, { "speaker": "Speaker 1", "text": "Digital credit is going to cannibalize, it's going to replace real estate capital, equity capital markets, credit capital markets, currency capital markets. And you can see here on the" }, { "speaker": "Speaker 1", "text": "screen most of them are just sitting with very lackluster yields, you know, and all sorts of risks and opacity. Some of them illiquid." }, { "speaker": "Speaker 1", "text": "None of them compare favorably to digital credit." }, { "speaker": "Speaker 1", "text": "You can see it on the chart here." }, { "speaker": "Speaker 1", "text": "Right?" }, { "speaker": "Speaker 1", "text": "You walk down the street and ask 100 people, \"Do you want a 30-year bond? Do you want something you got to hold for a decade and see if you get get wealthy on it?" }, { "speaker": "Speaker 1", "text": "Or do you want a bank account that pays you 10%?\"" }, { "speaker": "Speaker 1", "text": "And the answer is everybody wants a bank account that pays them 10%." }, { "speaker": "Speaker 1", "text": "Some people, there are specialists, might think they can do better than that with some of their money, but every corporation, every individual, every institution has a lot of money" }, { "speaker": "Speaker 1", "text": "they want to put in a bank, preserve the principal, and they want to get paid three times the money market rate, or four times the money market rate." }, { "speaker": "Speaker 1", "text": "One of the serendipitous results of digital credit is you can buy digital credit, you can collect the dividends tax-free, tax-deferred, you can reinvest them tax-deferred, and you can compound your" }, { "speaker": "Speaker 1", "text": "wealth in a tax-deferred basis on a credit instrument." }, { "speaker": "Speaker 1", "text": "Which normally you can't you can't do it with a bond. You can't do it with a preferred stock that's that's a normal qualified dividend distribution. So, there's a powerful compounding effect" }, { "speaker": "Speaker 1", "text": "and as you compound those dividends, you're lowering the basis in the instrument." }, { "speaker": "Speaker 1", "text": "So, you collect dividends until the basis in the instrument is reduced to zero." }, { "speaker": "Speaker 1", "text": "If you then pass that instrument to your heir, if your daughter or your son inherits that instrument, they get a step-up basis and so you got $100 of dividends tax-free, they will get $100 of dividends" }, { "speaker": "Speaker 1", "text": "tax-free." }, { "speaker": "Speaker 1", "text": "And you you can collect over 20 or 30 years, you can collect $200 of dividends tax-free on a $100 investment in the instrument." }, { "speaker": "Speaker 1", "text": "And what does that convert to?" }, { "speaker": "Speaker 1", "text": "Well, look at this. You have $100, you invested for 21 years in T-bills, you pay taxes on it, you reinvest the dividends after tax." }, { "speaker": "Speaker 1", "text": "After 20 years, you've got 158 bucks." }, { "speaker": "Speaker 1", "text": "And you're getting $3.68 in in after-tax cash flow." }, { "speaker": "Speaker 1", "text": "If you do the same thing with digital credit, after the same time period, you have 10 you know, not 10 but six times as much money. You have $965 and you're collecting $107 a year on an original investment of $100." }, { "speaker": "Speaker 1", "text": "And so, there's a massively powerful generational wealth transfer opportunity here for risk-averse investors and credit investors and people that never want to stomach a major drawdown, but" }, { "speaker": "Speaker 1", "text": "they do want to compound their wealth in a very tax-efficient way." }, { "speaker": "Speaker 1", "text": "So, let's talk about adoption." }, { "speaker": "Speaker 1", "text": "Who's buying this?" }, { "speaker": "Speaker 1", "text": "Um 80% of STRC is held by retail accounts." }, { "speaker": "Speaker 1", "text": "It's been a retail explosive phenomenon." }, { "speaker": "Speaker 1", "text": "We we counted 120,000 distinct retail accounts as of a few months ago." }, { "speaker": "Speaker 1", "text": "And um it's also being adopted by corporate treasuries in size." }, { "speaker": "Speaker 1", "text": "It's also being adopted by institutional investors in credit and indexes." }, { "speaker": "Speaker 1", "text": "It's also being adopted crypto natively." }, { "speaker": "Speaker 1", "text": "It's also being adopted by a bunch of financial innovators." }, { "speaker": "Speaker 1", "text": "Our estimate is it Well, first of all, there's a lot of ways to buy it. You can see you you can get it on E*TRADE or Robinhood or Fidelity or Charles Schwab." }, { "speaker": "Speaker 1", "text": "So, all of the standard retail rails are are supporting this. You can buy it in 10 seconds." }, { "speaker": "Speaker 1", "text": "So, it's easy." }, { "speaker": "Speaker 1", "text": "It has spread very rapidly, been a very successful retail product." }, { "speaker": "Speaker 1", "text": "And we estimate 3 million households right now are benefiting from STR C." }, { "speaker": "Speaker 1", "text": "So, what is our vision? Our vision is to power millions and then tens of millions and then hundreds of millions of households with a high yield savings account." }, { "speaker": "Speaker 1", "text": "It's a it's a straightforward thing." }, { "speaker": "Speaker 1", "text": "Everybody wants more money." }, { "speaker": "Speaker 1", "text": "Everybody would like a bank to pay them three times more than they're being paid right now. It's It's not even debatable." }, { "speaker": "Speaker 1", "text": "Create a digital yield account or a digital money account, a billion people want that. And so, we've got a good start." }, { "speaker": "Speaker 1", "text": "3 million in in 8 months." }, { "speaker": "Speaker 1", "text": "But, we're not going to stop there." }, { "speaker": "Speaker 1", "text": "We're going to go to corporations, too." }, { "speaker": "Speaker 1", "text": "If you're a company, you probably got most of your money in T-bills." }, { "speaker": "Speaker 1", "text": "And T-bills are giving you 3.5% before tax, 2% after tax." }, { "speaker": "Speaker 1", "text": "Well, Bitcoin Sorry, uh STR C appeals to a lot of these corporations because the tax equivalent yield is 5x higher." }, { "speaker": "Speaker 1", "text": "Like, wouldn't you like to get paid 16% instead of 3.6% of your corporate treasurer?" }, { "speaker": "Speaker 1", "text": "So, clearly this has become very interesting to a lot of people." }, { "speaker": "Speaker 1", "text": "If you allocate 1/3 of your treasury capital to STRC, you double your cash flows." }, { "speaker": "Speaker 1", "text": "And if you actually can put your treasury into STRC, you can generate nearly four times the cash flow." }, { "speaker": "Speaker 1", "text": "So, imagine four times the cash flow on assets that you have to hold on your balance sheet." }, { "speaker": "Speaker 1", "text": "And every company has to hold this. They need to make payroll, they need to pay taxes, they need to have 1 2 3 years of working capital, but they don't need to hold it in a low-performance money market if" }, { "speaker": "Speaker 1", "text": "they could do better." }, { "speaker": "Speaker 1", "text": "So, who's done it?" }, { "speaker": "Speaker 1", "text": "Energy companies, crypto companies, Bitcoin companies." }, { "speaker": "Speaker 1", "text": "It's starting to spread pretty rapidly now." }, { "speaker": "Speaker 1", "text": "I talked about institutional investors." }, { "speaker": "Speaker 1", "text": "BlackRock and VanEck run two of the more well-known larger credit funds." }, { "speaker": "Speaker 1", "text": "Uh Stretch is the third largest holding in each one of them." }, { "speaker": "Speaker 1", "text": "It's anywhere from two to six percent of their entire credit index. So, as money flows into those credit indexes, that money flows to Stretch, that flows to Bitcoin. And so, increasingly I think" }, { "speaker": "Speaker 1", "text": "we'll see where index to credit." }, { "speaker": "Speaker 1", "text": "There's also been a ton of ETFs." }, { "speaker": "Speaker 1", "text": "21 Shares uh embedded Stretch in an ETF and took it public in Europe a few weeks ago." }, { "speaker": "Speaker 1", "text": "Strive is creating a digital yield fund, and they're going to bring that to market in the US." }, { "speaker": "Speaker 1", "text": "There's a number of other interesting public funds that are being put together, and they'll come to market in the coming few months." }, { "speaker": "Speaker 1", "text": "And And that's probably a good segue for me to talk about money and yield." }, { "speaker": "Speaker 1", "text": "The opportunity is for a thousand companies to create their own digital monetary instrument or digital yield instruments all powered by digital credit, which is in turn powered by digital" }, { "speaker": "Speaker 1", "text": "capital." }, { "speaker": "Speaker 1", "text": "Look at what we've done here. We've taken digital capital 35 vol, 39 ARR, and we split it into equity and credit." }, { "speaker": "Speaker 1", "text": "The credit is three vol, 11% yield. The equity 72 vol, 58% ARR." }, { "speaker": "Speaker 1", "text": "Right? So, you can see what happens when you tranche the commodity into a credit and an equity instrument." }, { "speaker": "Speaker 1", "text": "The credit is layer two." }, { "speaker": "Speaker 1", "text": "We think of layer three as money and yield." }, { "speaker": "Speaker 1", "text": "And there's a lot of interesting layer three applications that your company could implement, that any bank, any crypto exchange, any investment manager, any even an individual can implement." }, { "speaker": "Speaker 1", "text": "So, we define digital money as 0% volatility daily liquidity." }, { "speaker": "Speaker 1", "text": "It's high-powered money, right?" }, { "speaker": "Speaker 1", "text": "Zero vol, I can get the money back every day, I get streaming dividends." }, { "speaker": "Speaker 1", "text": "Digital yield would be maybe not zero vol, maybe not liquid every single day, but it's built on digital credit." }, { "speaker": "Speaker 1", "text": "Well, you can imagine you can take stretch, you can tokenize it, you can put it in a private fund, you can put it in a public fund, an ETF, you can put it into a bank account." }, { "speaker": "Speaker 1", "text": "You can deploy it via any platform, you know, via Binance, via Coinbase, via Cash App. You can deploy it via the Commonwealth Bank in Australia or Deutsche Bank or JP Morgan or Morgan" }, { "speaker": "Speaker 1", "text": "Stanley." }, { "speaker": "Speaker 1", "text": "You can take it public on the NASDAQ or the Euronext or the nice stock exchange." }, { "speaker": "Speaker 1", "text": "You can step up and down the volatility." }, { "speaker": "Speaker 1", "text": "You can step up and down the yield. You want to crank the yield to 30%? You could do that. You could actually step down the yield. And then you can modify or program the liquidity from" }, { "speaker": "Speaker 1", "text": "continuous to daily to weekly to monthly to quarterly to annual." }, { "speaker": "Speaker 1", "text": "We've seen people doing all these things." }, { "speaker": "Speaker 1", "text": "Right? And so digital money it come it can come as a coin, it can come as a fund, it can come as an account." }, { "speaker": "Speaker 1", "text": "When you start thinking about it this way, you realize that if you step it down, you create 0% seven 0% volatility, 7 and 1/2% yield money, like a perfect stable coin Bitcoin-backed that pays 7" }, { "speaker": "Speaker 1", "text": "and 1/2% Um There are announcements about that that are just coming out right now. There are companies that are going to do that in the crypto ecosystem." }, { "speaker": "Speaker 1", "text": "And then you can see here that why wouldn't you just lever it up three to one? And you know, maybe you collect $33 or $35 of dividends." }, { "speaker": "Speaker 1", "text": "You pay $8 of interest." }, { "speaker": "Speaker 1", "text": "And you keep $25 on a $100 investment." }, { "speaker": "Speaker 1", "text": "So you've got 25% yield." }, { "speaker": "Speaker 1", "text": "You just loop it three times. And so that's also possible with digital yield." }, { "speaker": "Speaker 1", "text": "And here are some examples of companies doing it." }, { "speaker": "Speaker 1", "text": "Apex is doing it. Saturn is doing it." }, { "speaker": "Speaker 1", "text": "Uh Hermetica is is it. There's there's a big thirst in the in the crypto economy to generate Bitcoin back yield, and so some companies are creating yield on Bitcoin with this." }, { "speaker": "Speaker 1", "text": "And then there's a lot of people that want to create stablecoin back yield." }, { "speaker": "Speaker 1", "text": "How do I get yield off my stablecoins?" }, { "speaker": "Speaker 1", "text": "And then that's a very straightforward thing as well, and Apex and Saturn are doing that." }, { "speaker": "Speaker 1", "text": "Of course, you can also innovate with mutual funds and private funds and and you can you're seeing tokenization taking place right now." }, { "speaker": "Speaker 1", "text": "How fast?" }, { "speaker": "Speaker 1", "text": "You know, the chart's out of date. It's It was zero to 200 million in the last 4 weeks, and now it's about to go through 300 million." }, { "speaker": "Speaker 1", "text": "So, this has gone from nothing to hundreds of millions of dollars. I think we'll probably go through a billion dollars of AUM over the next 4 to 8 weeks. So, this is explosive industry downstream of stretch." }, { "speaker": "Speaker 1", "text": "And we're committed to helping everybody that builds on top of STRC, and we want to make it higher frequency, more liquid, less volatile." }, { "speaker": "Speaker 1", "text": "And one way we think we can do it is to double the frequency of the dividend." }, { "speaker": "Speaker 1", "text": "So, go from monthly to semi-monthly." }, { "speaker": "Speaker 1", "text": "So, you guys get paid every 2 weeks by your employers, so why shouldn't your assets pay you every 2 weeks, right?" }, { "speaker": "Speaker 1", "text": "Why wouldn't you want that?" }, { "speaker": "Speaker 1", "text": "So, it it works out instead of 12 cycles where you have a a dividend cycle, a drawdown, it goes to 24 cycles. But 24 cycles with half half of the intensity, half the dividend, which means that in theory, we" }, { "speaker": "Speaker 1", "text": "should be able to get the thing to vibrate in a much tighter range, and that will decrease the vol." }, { "speaker": "Speaker 1", "text": "We we're we're hopeful it'll decrease the vol, increase the liquidity. That's what we would expect. And um whenever you double the frequency of something in in the physical world, that's called taking it an octave" }, { "speaker": "Speaker 1", "text": "higher. A note that's an octave higher is double the frequency. It's a higher energy you know, uh higher fidelity signal. That's what we're doing with STRC." }, { "speaker": "Speaker 1", "text": "Um I just make a couple of points here." }, { "speaker": "Speaker 1", "text": "It will be the only preferred stock in the world to pay semi-monthly out of 921." }, { "speaker": "Speaker 1", "text": "It will be the only stock in the world that pays a dividend monthly out of 24,000 common stocks. It'll be the only one that pays semi-monthly. So, we are innovating in frequency and engineering" }, { "speaker": "Speaker 1", "text": "construction and um and design." }, { "speaker": "Speaker 1", "text": "But at the end of the day, the great innovations will be the people that put the funds and the coins and the tokens on top of it because they can go to hourly streaming. They can go to hourly" }, { "speaker": "Speaker 1", "text": "frequency 24/7 365." }, { "speaker": "Speaker 1", "text": "They could, you know, loop step it down, loop it up, transform it into yen, euros, dollars, whatever you might want." }, { "speaker": "Speaker 1", "text": "And so, we're really excited to provide a stable platform for everyone else to build on top of it." }, { "speaker": "Speaker 1", "text": "Uh this will go to a vote and the polls will close in early June. And if it's approved by the shareholders, then the first record date will be the end of June, the first payment date will" }, { "speaker": "Speaker 1", "text": "be July 15th. And uh those polls are now open. So, if you would like if you're a stretch holder and you'd like to make your voice heard, you can go to our website and you can vote or you can do" }, { "speaker": "Speaker 1", "text": "it here. And with that, I I will end with the thought digital credit is a killer application of a Bitcoin." }, { "speaker": "Speaker 1", "text": "We expect to sell tens of billions of digital credit until we sell hundreds of billions of digital credit." }, { "speaker": "Speaker 1", "text": "And if we sell hundreds of billions of digital credit, we will then move to see if we can sell trillions of dollars of digital credit. Every dollar that goes into digital credit will flow into" }, { "speaker": "Speaker 1", "text": "digital capital. It will flow into the Bitcoin network. And and as it flows in the Bitcoin network, the price of Bitcoin should increase. We expect that digital credit will drive the size of" }, { "speaker": "Speaker 1", "text": "the Bitcoin network. You know, and what's the end game? Uh the end game isn't that complicated. It's give a bank account an 8 to 10% a year yielding high yield digital bank account" }, { "speaker": "Speaker 1", "text": "to a billion people." }, { "speaker": "Speaker 1", "text": "Drive Bitcoin to $10 million a coin." }, { "speaker": "Speaker 1", "text": "And make Bitcoin a $200 trillion network until it grows higher." }, { "speaker": "Speaker 1", "text": "And and give everybody in the world an alternative to 20th century credit instruments, zero yielding bank accounts, lackluster junk bonds, private credit, or risky rickety equities, or all of the all of the" }, { "speaker": "Speaker 1", "text": "challenging real estate investments that are difficult to manage, that are illiquid, that are immobile. And those things collectively represent the digital transformation of all the" }, { "speaker": "Speaker 1", "text": "capital markets." }, { "speaker": "Speaker 1", "text": "And as we like to say in this business, you know, in the Bitcoin community we say fix the money, fix the world." }, { "speaker": "Speaker 1", "text": "Digital credit is the next killer application to fix the money, and it's going to spread Bitcoin everywhere in the world, and it's going to cause Bitcoin to back all the stable coins," }, { "speaker": "Speaker 1", "text": "all the crypto tokens, all sorts of other conventional credit instruments." }, { "speaker": "Speaker 1", "text": "And and it'll be a good day when the major banks and the major investors in the world all own some digital credit or they offer digital bank accounts powered by Bitcoin." }, { "speaker": "Speaker 1", "text": "You guys all made it possible and you inspire me every day. So, thank you. I'm appreciative to be on the journey with you all." }, { "speaker": "Speaker 2", "text": "Every year this community comes together to celebrate to debate to build what comes next." }, { "speaker": "Speaker 2", "text": "And every year the stage gets bigger." }, { "speaker": "Speaker 2", "text": "Sound money center stage. So, where do you go to celebrate the next chapter in Bitcoin history?" }, { "speaker": "Speaker 2", "text": "You come home." }, { "speaker": "Speaker 2", "text": "Nashville, July 2027." } ]