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Chapter 1: What is the main topic discussed in this episode?
What if comparing Bitcoin to gold was never the right framing for understanding Bitcoin's potential?
Chapter 2: What is Bitcoin's evolving role beyond digital gold?
What if Bitcoin is digital, gold is just this bootloader narrative for something much bigger, much more profound, and massively disruptive to the entire capital stack of modern finance? There's a reason why Michael Saylor doesn't call Bitcoin digital gold. Instead, he calls it digital capital. He's been actively expanding Bitcoin into a bigger taxonomy.
Chapter 3: How do Bitcoin-backed credit products like SATA and Strategy's STRETCH work?
Digital capital, digital credit, digital equity. If you rewind the clock to the earlier years of Bitcoin, you'll find echoes of this same narrative. Hyper-Bitcoinization isn't really a phrase that you hear often anymore, at least not in my circles. But in my early years of crypto, hyper-Bitcoinization was the gold standard meme echoed across Bitcoiner circles. It was deafening.
And as someone in the much smaller, more modest Ethereum community, it was annoyingly hard to pierce. Hyper Bitcoinization is when Bitcoin becomes the dominant or sole global currency, displacing fiat currencies entirely. The idea is that a tipping point occurs where a gradual adoption curve begins to accelerate into a race condition.
a positive feedback loop where the last people holding fiat lose and the world begins to recognize Bitcoin as superior money. Bitcoin is the denominator and everything divided by 21 million are actually still memes chanted today that came out of this hyper-Bitcoinization idea.
Chapter 4: What are the implications of high yield and daily dividends in Bitcoin credit markets?
fast forwarding to today, the crypto industry didn't exactly take the path envisioned by Bitcoiners in 2018, and especially not Ethereans in 2020. But nonetheless, I do have to give credit to this early concept of hyper Bitcoinization because it's being reincarnated in this new modern idea of Bitcoin as digital credit.
Bitcoin doesn't need to convince the people of the world to denominate their wealth in Bitcoin. Asking for behavior change at this magnitude is simply asking too much. It's too radical. Reality is far more modest. Reality is somebody just needs to take that risk and offer 11 or 13% fiat denominated yields so they can capture Bitcoin's 30% year over year average upside. My guest today on the show,
has a background in insurance and structured finance, which are the exact industries that he thinks are perfect target customers for these financial products, high yield, collateral backed equities. In fact, according to him, these products are so devastatingly simple that they short circuit people's brains when they try to reason about them.
Chapter 5: How does Bitcoin's balance sheet influence its market position?
While the rest of the world of structured yield products and insurance funds go to incredible lengths to produce the financial alchemy needed to maximize their bips, products like Stretch or Sata stripped out the complexity and actually offer better yields.
The simple elegance of these digital credit products, my guess thinks, is what will cause them to grow into the hundreds of billions of dollars in size, all of which flows back to Bitcoin. which fundamentally changes the potential TAM of Bitcoin itself, elevating it from digital gold to digital capital.
My guest today is Jeff Walton, and he is the chief risk officer at Strive, a company structured very much like strategy and has their own perpetual preferred equity, also much like strategy stretch, which they call SATA, S-A-T-A.
Chapter 6: What is the potential market size for digital credit instruments?
You may have recently seen Jeff on CoffeeZilla's podcast where he debated whether or not Strategies Stretch product is a Ponzi or not, which is where we start off this conversation. But I'm more open and agreeable than CoffeeZilla. And by the end of this conversation, Jeff got me doing something that I've actually had a hard time recently doing in crypto, which is to dream bigger dreams.
Jeff, welcome to Bankless.
Chapter 7: How do trust networks impact Bitcoin's adoption?
Thanks for having me. Happy to be here.
Jeff, why isn't Stretch a Ponzi?
Why isn't Stretch a Ponzi? Stretch isn't a Ponzi scheme because it is a balance sheet that is taking risk on each individual instrument that is sold for the company. That's it.
So, Jeff, you were in a conversation with CoffeeZilla, which is where you came on my radar, and Coffee had a lot to say about a lot of things around Stretch. I think most of it started off with the marketing, and I think you did a pretty good job kind of like containing the conversation to be more reasonable and realistic. And I kind of want to take that a step further.
I'm not as antagonistic as coffee to the concept of stretch, but still I do understand the way I understand stretch.
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Chapter 8: What challenges do digital credit products face in the current market?
And you have also a very similar product, perhaps structurally identical called, uh, Sata S A S A T A. Yeah. Um, And so you're doing a very similar thing. And so the way that I understand this product is that the difference between it being like, quote, unquote, a Ponzi or blowing up versus being a just a solid financial product is all down to risk management.
Is that true? I would say risk management and balance sheet structure. Really, these are capital vehicles. These are companies that hold capital and they're taking on risk with that capital. Now, that capital, you're taking on risk on the balance sheet capital, right? It's not like I'm deploying each one of my individual Bitcoin and going to go sell a derivative against the underlying Bitcoin.
I'm using my balance sheet as capital. And I'm creating risk layers on my balance sheet. I'm using the capital structure of my entire company to take on risk. Now, that sounds risky to a lot of people, but the relative risk profile, when you look at the math and start to think about how this is designed, how it is structured, I think the risk profile is significantly misunderstood.
One of the concerns or flags that raises in my mind, maybe many other people who hold larger positions of Stretch or Seda, is that there is no assurances that there will be Bitcoin sold to fund the dividends. Like it's actually not, it's an equity instrument. And so as an equity instrument, it could be wiped out. There is no investor protections. Now, I want you to talk about the preferred angle.
I'm sure that's relevant here. But there's still no like hard-coded investor protections to force strategy to sell Bitcoin to fund my interest obligations and or even retain my principal. And talk about that decision as a financial asset, that strategy and also you have made.
So look, we're selling a credit product. right? So there's an element of credit worthiness and trust. If you came down to a situation where you don't pay a dividend, that impacts the trust, that impacts the credit profile, that impacts how the market may view your individual instrument. So speaking for us, I mean, we're going to do everything in our power to pay the dividends. We understand the
the seriousness of this instrument. We understand the scale. We understand what this can become. And that is paramount in how we're thinking about our balance sheet and how we're delivering this product to the market. So, I mean, we've publicly stated before strategy did that we would be willing to sell Bitcoin in order to pay the dividends.
And I think it's helpful to think about the capital structure, right? So we've got We've got significant Bitcoin reserves held on our balance sheet. I think as of today, something like 18 years. We just announced a new Bitcoin purchase right now. As of today, we've got 15,390 Bitcoin. On our balance sheet, we have $524 million of notional perpetual preferred outstanding. Okay.
So our annual interest obligation is $68 million. Okay. Okay, we have 12 months of cash and six months of STRC to pay the dividends already on our balance sheet. So that's like, you could think of it as like first line of defense before the Bitcoin comes into play.
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