Author: Viktor, Source: Crypto Narratives, Compiler: Shaw Golden Finance

Key Points

• STRC is a yield-based instrument powered by Strategy’s Bitcoin Treasury. Its dividend rate is dynamically adjusted to keep the price close to face value ($100).

• Currently, you can earn an annualized return of 11.5%, with monthly dividends and a high level of risk transparency with this highly stable instrument.

• STRC is essentially Strategy’s way of translating market yield demands into structural bids for Bitcoin.

• This structure can be massively expanded without increasing the leverage of MSTR - as long as Strategy runs both STRC and MSTR's ATM market price issuance mechanism (requires mNAV > 1x). This means Strategy can undertake $10 billion or more of new STRC demand while stabilizing leverage at around 33% and keeping credit risk unchanged.

• Each $1 of STRC issued roughly adds $3 of Bitcoin to the Bitcoin treasury thanks to the common stock ATM mechanism used to maintain leverage. Rough calculation: STRC's single-day trading volume at a face value of US$100 reaches US$100 million, which can drive Bitcoin purchases of US$100 million to US$150 million.

• Strategy effectively splits Bitcoin risk exposure into two different risk tiers: STRC holders receive relatively stable, low-volatility returns; MSTR common shareholders bear the remaining rise and volatility of Bitcoin. As Lavoisier famously said: "Nothing dies, nothing is created, everything is transformed."

• The entire structure is designed to increase Bitcoin per share (bps) over the long term, which ultimately benefits MSTR common shareholders because it means MSTR should mechanically outperform Bitcoin.

• STRC’s short-term retracement of 5% to 10% is possible, but as long as the market’s confidence in this structure remains unchanged, funds will push the price back to near the face value through arbitrage.

• The real risk is not a sudden crash, but a long-term bear market for Bitcoin, which could gradually put pressure on the structure.

• Even in the (highly unlikely) worst-case scenario, progress would be very slow because Strategy has a buffer of U.S. dollar reserves and the flexibility to adjust dividends. If MSTR does go down, it is unlikely to be a violent thunderstorm like Luna/UST, but more likely to be a slow, long-term loss of value.

• Being long on Bitcoin while short on MSTR and STRC is almost logically untenable. In terms of Strategy’s current risk level (subject to change): Unless Bitcoin goes to zero first, it’s hard for MSTR to truly “die.”

Foreword

$STRC has seen a significant increase in trading volume over the past two weeks, as well as continued interest in the product on crypto social media, so I thought now would be a good time to write a new article about Strategy and its new structure.

This will be the fourth article I have written about Strategy (MSTR) and its Bitcoin treasury model. In this article, we will focus on $STRC, which has become MSTR’s core preferred stock and is the current focus of Saylor and his management team.

What is STRC and how does it work?

First, let me review the definition of preferred stock: Simply put, it is a quasi-debt instrument, but it is still essentially company equity. This means that the preferred shares never have to be “repaid” and Strategy cannot default on them. In the capital structure, preferred stock has a higher priority than common stock $MSTR, which means that if the company goes bankrupt, preferred stockholders will be paid off before common stockholders.

To date, Strategy has issued five preferred shares ($STRF, $STRC, $STRK, $STRE, $STRD). The following are the core features of $STRC:

• It is a short-duration, high-yield credit variety.

• Strategy's goal is to keep the $STRC price as close to **$100 (face value)** as possible, with an ideal range of $99–$100, with a fluctuation of no more than 1%.

• $STRC pays a floating dividend monthly with a current dividend rate of 11.5%.

• If $STRC falls significantly below par value, Strategy can increase the monthly dividend rate, increase product appeal and demand, and drive the price back to par value.

• If the $STRC price is above $100, Saylor can issue and sell new $STRC shares at $100 through the ATM (Issuance to Market) program, effectively creating a price ceiling near $100.

• If Saylor does not want to issue additional shares via ATM, there is another mechanism: the company can redeem STRC at $101, meaning there is little incentive to buy above that price.

• Like all other Strategy preferred stocks, STRC is a perpetual preferred stock with no expiration date and perpetual existence.

How Strategy uses the ATM mechanism to control leverage

Although the preferred stock is not strictly debt, it can be viewed as a way for Strategy to add leverage to its balance sheet. Strategy makes a distinction between the leverage ratio (which only calculates the ratio of convertible bond debt to Bitcoin reserves) and the amplification ratio (convertible bonds + preferred shares / Bitcoin reserves), but the amplification ratio is a measure of MSTR’s true leverage level.

What this means: Every time Saylor issues and sells more STRC preferred shares, he is increasing Strategy's leverage. The tool he can use to reduce the company's leverage is the ATM market price issuance mechanism of common shares: by issuing new MSTR common shares and using the raised funds to buy Bitcoin, he can reduce the leverage ratio while expanding the company's scale.

The principle is easy to understand: Consider a company holding $10 billion worth of Bitcoin, $3 billion in debt, and a market capitalization of $12 billion. Then its leverage ratio is: 3 billion liabilities ÷ 10 billion BTC = 30%.

Now suppose the company issues $2 billion worth of additional stock and uses the money to buy $2 billion in Bitcoin. Under the premise that the price remains unchanged: the company's market value becomes US$14 billion; the value of the Bitcoin treasury becomes US$12 billion; the total liabilities remain unchanged; the new leverage ratio is: 3 billion liabilities ÷ 12 billion BTC = 25%.

It can be seen from this example:Using the ATM additional issuance of common stocks can not only expand the company's scale (market value 12 billion → 14 billion), but also reduce leverage (30% → 25%).

What is the current situation of STRC? Is Saylor buying a lot of Bitcoin?

How STRC demand translates into Bitcoin buying

As I said before, Saylor will sell STRC at $100, but not below $100. This means that as long as the price is strictly below $100, all volume is simply STRC changing hands between old holders, current holders, and new investors. As long as the price is at $100, part of the volume is ordinary changing hands (someone will sell at $100), but the rest is Saylor issuing and selling new shares to excess demand.

Last week, the ratio of STRC’s weekly trading volume to that week’s ATM issuance quota was about 40%. I'll use this number as an example, but it's obviously not a hard and fast rule and it could entirely be 25% or 60% in some cases.

Here’s what happens when STRC trades at a face value of $100 and has a single-day trading volume of $100 million: Saylor can issue 40% of the quota through STRC’s ATM mechanism, which is to sell $40 million in new STRC shares. He then turned around and immediately used the money to buy $40 million worth of Bitcoin.

But selling STRC, a type of debt instrument, would increase the company's leverage, and he wants leverage to remain stable. MSTR's leverage is currently around 33%, and I think he wants to stay around that level. This means that for every $1 of new debt, $3 of Bitcoin must be added to the treasury.

In our example, if Saylor adds $40 million in new debt through STRC and buys $40 million in Bitcoin, he would need to add an additional $80 million in Bitcoin to the company's reserves.

How will he do it? As I explained earlier: through the ATM mark-to-market mechanism of common stock MSTR. He would issue and sell $80 million worth of new MSTR shares and then immediately use the proceeds to buy $80 million in Bitcoin.

Conclusion: Through this rough calculation, STRC’s single-day trading volume is US$100 million → approximately US$40 million in new STRC issuance → a total of US$120 million in Bitcoins were purchased and included in the company’s treasury. With STRC, Strategy has found a path: directly converting the market's demand for stable returns into buying pressure on Bitcoin.

What will happen if demand for STRC explodes? Will Saylor be forced to pull the levers?

I want you to pay attention to another important point: according to the model I just introduced, Strategy can completely triple the market value of $STRC (in other words, add $8 billion of debt-like debt through STRC on the basis of the current market value of $4 billion), whilenot increasing the leverage ratio (i.e. credit risk) at all.

Saylor already has a full set of tools to scale STRC to any level needed to meet market demand while maintaining a stable leverage ratio of 33%.

Obviously, the nominal size of the company's debt and the dividends it needs to pay will increase, but these will expand in proportion to the Bitcoin treasury, which means that the company will not bear any additional risk due to Bitcoin price fluctuations.

What are the real constraints on this strategy?

The mechanism described above for running STRC and MSTR dual ATM market price issuance at the same time needs to meet two conditions:

• First, it is obvious that $STRC must trade at $100 face value: whenever this happens, demand for STRC exceeds the current market cap, and Saylor will issue new shares to match the excess demand.

• Second, and something I haven’t mentioned yet: using the common stock ATM mechanism requires that the mNAV must be higher than 1x. As I explained in detail in my previous article, Strategy's long-term north star metric has always been Bitcoin per share (bps). When they sell MSTR and buy Bitcoin when mNAV is above 1x (i.e., a premium to net asset value), it increases the number of Bitcoins per share (bps). The higher the mNAV, the stronger the thickening effect of the operation; a value exactly equal to 1x is neutral. But when mNAV falls below 1x, selling MSTR for BTC dilutes the number of Bitcoins per share, so they avoid doing so.

You may have noticed that I mentioned in the previous section that ATMs using MSTR can increase the size of the company and reduce leverage; and if mNAV is higher than 1x, issuing additional common shares can also bring the additional benefit of increasing the number of Bitcoins per share (bps).

By the way, mNAV is displayed directly on the home page of the Strategy.com official website. They use the highest diluted mNAV as a reference (which is also reasonable). The current mNAV is 1.2x, with the lowest value so far in 2026 being around 1x.

What happens if Saylor has to issue new shares due to overheating demand for STRC, but mNAV is less than 1x? Does this mean he is unable to maintain leverage stability with MSTR's ATMs and is forced to increase leverage?

First of all, I think the probability of this scenario is very low, because STRC's ability to stand at $100 itself shows that investors have confidence in the overall structure. At this time, MSTR's mNAV should remain at least above 1x. Second, this assumption ignores that they also have a tool to suppress demand for STRC:cutting the dividend rate .

Dividend yield: 11.5% doesn’t sound sustainable

First, a reminder: STRC's dividend yield was 9% when it launched. The dividend yield is an adjustable tool used to match STRC's needs and ensure it trades around face value. Strategy's current guidance is that if STRC's monthly volume-weighted average price (VWAP) is between $95 and $99, they will increase the dividend rate by 25 basis points; if the monthly VWAP is below $95, they will increase it by 50 basis points; if the monthly VWAP is above $101, they will lower the dividend rate.

So to put it simply, what they are doing now is to gradually increase the dividend rate of STRC from 9% to 11.5% in order to reach an equilibrium state and keep the price of STRC stable near the face value of US$100 every day. This week has been the most successful for STRC so far, as it not only continues to trade at par, but also on huge volumes (~$300-400 million per day, compared to previous averages of just over $100 million).

STRC requirements essentially depend on several variables:

• Credit Risk: What is Strategy's current leverage? In other words, how many Bitcoins are currently serving as the underlying support for STRC? This is a direct consequence of the price of Bitcoin: if Bitcoin falls, all else being equal, leverage rises, credit risk increases, and STRC demand should fall (i.e., STRC price falls).

• Yield: What is the dividend rate STRC currently pays? The higher the dividend yield, the higher the demand for STRC.

• Market Awareness: How many people know about STRC? This is a very important factor in the early months and even years of a product launch, as it basically only goes up and, all else being equal, can significantly impact demand for STRC.

• Market Confidence: How many people are willing to invest with confidence after watching STRC trade steadily for several months and continue to pay dividends? This is a special factor because confidence can fluctuate wildly: if STRC trades in a very tight range around $100 for a long time, more and more people will consider it safe; but if there is a sudden 10% plunge one day, that trust can dissipate quickly.

What we’ve seen since launch is: Credit risk has gone up (as Bitcoin is down 45% from its all-time high), but yields have gone up, awareness has gone up, and confidence has gone up. One factor impacted demand negatively, the other three positively, and we are now finally in the ideal situation where STRC stabilizes at $100 par.

With Bitcoin at around $68,000, a yield of 11.5% would be needed to keep STRC at par. For a product that's been out for less than eight months, this seems pretty constructive to me. Saylor expects Bitcoin to achieve a compound annual growth rate of 20%–30% over the next 20 years. As I explained in detail in my previous article, under these assumptions, it makes perfect sense to issue debt at 11.5% interest to buy an asset that grows at 25% per year. In theory, you could even pay a higher interest rate and make a profit by earning the spread between the interest cost and Bitcoin's expected annualized return.

In my opinion, the most likely path is that demand for STRC will continue to grow, and Strategy will gradually lower the dividend rate back to 10% (or even lower in the long term) to curb demand while reducing its own interest costs.

What would happen if everyone tried to sell STRC?

In this case, STRC price will definitely plummet! But this kind of situation has happened several times with this product:

• August 2025: Plunge 6% from $98 to $92

• November 2025 sell-off: 11% plunge from $100 to $89

• This February: Plunged 7% from $100 to $93

You have to be clear: Saylor'spublic goal is very clear, which is to keep STRC in a narrow range near $100, and STRC has become Strategy's core focus. So if STRC's average price falls below $99 over the course of a month, Strategy will increase the dividend rate, reigniting demand and bringing the price back to $100. As long as investors believe in Strategy's ability to do this, there will always be bargain hunting funds below $100, trying to push the price back to par through "carry trades."

In the short term, holder panic may cause the price to plummet by 10%, but if you believe in the mechanism designed by Strategy, the price will return to par value within days or weeks - history has proven this many times.

What prevents dividend rates from rising indefinitely?

We might as well assume: STRC has never been able to return to face value. Does this mean Strategy has to keep increasing its dividend yield? And since there is no formal cap on the dividend rate, will this turn into a death spiral? Not really.

First of all, you need to understand: the so-called dividend "adjustment guidelines" do not legally bind Saylor. Ultimately, the company has discretion over its dividend rate and can stop raising it even if the monthly average price falls below $99.

To put it simply: If they expect Bitcoin to grow by 20%–30% per year, then there is a high probability that they will set an affordable “maximum dividend rate”, such as around 15%. Once this level is hit, they can simply stop raising rates regardless of where STRC is trading.

Also remember: the dividend rate can be adjusted monthly. If you expect Bitcoin to rebound after the bear market, then the "high dividend yield" does not need to be maintained forever. As Bitcoin prices rise again, STRC's credit risk will decrease and demand will naturally rise, driving the price back to par. At that point, the company can lower its dividend rate again.

In the long term, it is entirely possible that STRC's dividend yield will eventually fall back to around 8%, even if it rises to 13% during periods of market stress.

In the next section (Risk 4 below), I will outline the worst-case scenario that could occur if Bitcoin enters a secular bear market and Saylor is forced to continue raising its dividend rate.

Understand the risks

The whole article reads as if everything is foolproof, but I don’t believe it is pie in the sky at all. What is my actual risk as a STRC holder?

I made my position very clear: I believe that the current market misprices the risk of STRC, and its risk-benefit ratio is attractive under reasonable assumptions of optimism for Bitcoin prices. But I am by no means saying that you can get high returns with zero risk. The risk is real and will always be tied to Bitcoin’s performance.

But I think there is a mismatch between people's expectations for Bitcoin's price movements and their perception of STRC's risks. To put it simply: If you look at the expectations of crypto-native investors for Bitcoin in the next few years, the scenarios expected by 95% of them will not have a substantial impact on STRC - that is, according to their own expectations for Bitcoin, they can use "low risk" to get more than 10% of returns. But we still need to talk seriously about risk.

Risk 1: Asymmetry between downside risks and upside returns

The structure of STRC means that if you buy at $100, the upside is capped at the annual dividend (currently 11.5%); but judging from historical trends, the downside may fall by 0% to 10% in a few days.

This means: If STRC plummets 6% in a week, your temporary retracement is equivalent to a half-year dividend. This becomes a problem if you need to get out quickly.

If your goal is to hold STRC for the long term, it doesn't really matter - as long as you believe it will always return to $100, you can still eventually exit without a loss. (As a reminder: STRC dividends have a return-of-principal nature, which incentivizes holders not to trade short-term because the dividend component is generally not taxable.)

Risk 2: STRC and Bitcoin plummet simultaneously

STRC's credit risk is directly linked to the price of Bitcoin. You may have noticed: STRC’s sharp retracements often happen during the most violent sell-off phases of Bitcoin. This means that the “stable, interest-earning” asset you allocated will suffer floating losses when you are most vulnerable as a crypto bull.

Risk 3: STRC has been trading at a discount for a long time

The market's confidence in STRC's ability to return to face value comes from both its actual credit risk and the expected risk formed from historical trends. And the second factor may work in the opposite direction: What happens if everyone thinks that a 5% drop will lead to a pullback, but it doesn’t?

Then those who buy the bottom when the price falls by 5% will leave the market, and the price will fall further, which may trigger emotional selling step by step, leading to a larger retracement. We imagine a scenario: STRC falls by 15% and fails to rebound for many consecutive days, then the market's accumulated confidence in the product will gradually collapse, triggering greater selling pressure.

In this case, what can stop the vicious cycle? As always, it will ultimately come down to Bitcoin price. Saylor’s entire strategy is ultimately based on the expectation that Bitcoin’s annualized returns will reach more than 20% in the next decade or more.

What’s the worst case scenario?

Risk 4: The core risk is always the performance of Bitcoin

STRC’s worst-case scenario is the scenario described above, coupled with Bitcoin’s inability to regain strength in a long-term bear market. Obviously, this scenario involves too many variables and it is difficult to predict clearly, but it will roughly look like this:

• $STRC will trade below par, so Saylor increases the dividend rate each month in an attempt to bring back the $100.

• At some point, the dividend rate will be so high that it is meaningless, so he will stop raising interest rates and no longer abide by the guideline of "raising interest rates when the monthly VWAP is below $99." Remember these are just guidelines and there are no terms forcing him to follow them.

• Failure to comply with the guidelines will further undermine confidence, and STRC may continue to be deeply discounted, such as a discount of 40% and a dividend rate of 15%, corresponding to an actual yield of 25%.

• $MSTR will fall below 1x mNAV, meaning they cannot issue additional MSTR to cover the dividend.

• At that time Strategy will be entirely reliant on US dollar reserves to pay dividends, currently sufficient to cover 28 months (2 years 4 months) of dividends.

• As these 28 months come to an end, all varieties will face greater pressure: BTC, MSTR, STRC will have more reasons to fall.

• Strategy will have to gradually sell Bitcoin once its U.S. dollar reserves are depleted. The current annual dividend is about $1 billion. If it increases to $2 billion, Strategy will need to sell about $200 million in BTC every month to pay the dividend. Alternatively, they could choose to stop paying dividends - at which point the value of preferred shares, STRC, and MSTR would plummet further, leaving them essentially powerless until Bitcoin prices recover.

The above is the rough outline of the worst-case scenario. As you can see, U.S. dollar reserves provide a huge buffer against a bear market: In theory, even if Strategy does nothing, it can continue to pay dividends on reserves for more than two years without being forced to act.

Currently we are in a Bitcoin bear market with prices around $70,000 (down ~45% from highs), but $STRC is still trading at par (dividend yield 11.5%) with an mNAV of 1.2x.

Given that I don’t think Bitcoin will experience a two-year bear market (the 2022 bear market only lasted about a year from top to bottom), and Strategy doesn’t even need to use US dollar reserves yet, I think: Strategy’s overall structure is quite safe and resilient under the current leverage.

The biggest risk is that this model runs too smoothly?

As a Bitcoin bull, I believe the core risk associated with MSTR is that it performs too well.

The fact that MSTR already holds approximately 3.5% of the total Bitcoin supply could have a negative impact on Bitcoin’s future demand, as it could begin to undermine the narrative of Bitcoin as a purely decentralized asset. The “digital credit” narrative built around STRC and its high yields has also sparked a negative reaction among segments of the crypto industry, which may once again indirectly impact Bitcoin demand.

As I’ve explained throughout this article, Strategy’s holdings of Bitcoin will only continue to grow. The only scenario in which this does not happen is if Bitcoin enters a deep bear market that lasts at least two years. Even so, it would take years of downturns before dividend payments slowly depleted Strategy's Bitcoin reserves.

I can understand why some people would be unhappy with MSTR getting involved in Bitcoin, but to me, if that's enough to make you bearish on Bitcoin's long-term prospects, then you're probably not that optimistic to begin with. In my opinion, it's not that serious. Granted, Strategy is a separate entity that holds 3.5% of the Bitcoin supply, but at the end of the day, Strategy and its Bitcoin reserves belong to its shareholders.

Is this really that different from BlackRock holding a similar amount of Bitcoin on behalf of its shareholders through IBIT? Obviously the two are not the same thing at all, and IBIT does not have the risk of bankruptcy, but in my opinion they are somewhat similar: both represent the financialization of Bitcoin, and both are inevitable trends.

I don’t think Strategy and STRC will become systemic risks to Bitcoin, but I can see the negative impact they could have on the market narrative. In any case, the main purpose of this article is to educate everyone about the structure of STRC and Strategy. After that, you can decide for yourself whether to be long or short.