A $100 Billion Dollar Opportunity w/ Strive, Strategy, & Nakamoto | BFC Symposium 2026

Añadido: 2026-05-06

[00:00:02]All right, guys. So, I've been super excited to have this panel. Um, I think we have a group of rock stars over here.

[00:00:09]So, just real quick, let's just go down, introduce yourselves. I'm sure you don't need any intro introduction. Let's just make it quick.

[00:00:16]>> Sure. Uh, hi everyone. I'm CJ. I'm the head of investor relations at Strategy.

[00:00:22]Been at Strategy for close to two years now and been obsessed with Bitcoin for close to five. Nice to meet you all.

[00:00:28]Yeah, I'm Whoa, that's loud. Uh Jeff Walton, chief risk officer at Strive and CEO of True North and we are a Bitcoin treasury company and we are the issuer of Seda, which we'll be talking about a little bit more today.

[00:00:41]>> Hey everyone, uh good to be here again.

[00:00:43]Tyler Evans, I'm the chief investment officer of Nakamoto and also run our investment business at UTXO Management.

[00:00:52]>> Yeah. So to start off um you know obviously we have two representatives of digital credit issuers over here. We have CJ and Jeff. So I just have a question for you guys. From the issuers perspective, what are you guys seeing as the most interesting models for building on digital credit?

[00:01:14]>> Yeah, I can start. Um so I think we've seen in the last 3 months or 4 months a lot of different players launch interesting products on top of digital credit on top of stretch on top of SATA and I think a lot of them are very interesting. The one that I find personally the most uh fascinating is the idea of branching out stretch into different layers similar to what we do as issuers of digital credit. We we take Bitcoin and we branch it into common equity. That's junior, more risk, more wall, more performance. And you have digital credit, which is senior, less risk, fixed performance, and lower wall.

[00:01:52]And you can take digital credit and in theory do the same thing which is you can branch it out into another senior layer that is backed by 5x more digital credit and is perfectly stable zero volatility and is passing through most of the yield maybe 6% yield or 8% yield.

[00:02:09]It almost starts looking like a stable coin except it's not backed by T bills.

[00:02:14]is backed by Bitcoin eventually and there's issuer risk in the middle and it is much more attractive cuz it's offering a 6 or 8% yield but most importantly you need the junior equity tranch over there as well so that the equity tranch can absorb the volatility that is getting stripped away from this senior branch and you can call the senior tranch digital money and the junior tranch digital yield that's what we are trying to you know advocate for and discuss And I know Jeff also has some interesting ideas over there. So I'll pass it to him.

[00:02:48]>> Yeah, I think this is the biggest idea.

[00:02:50]I think this is the future of these digital credit instruments can expand into this further trunched uh layer system like you suggest. I I think it's one of the most fascinating opportunities that I think is a you 50 to$100 billion idea that's there for somebody to take it and run with it. You need very few people in order to do this. You probably need a team of five people. Uh, one of the things that you could do with the senior trunch, as you mentioned here, CJ, is turn it into an investment grade senior trunch. One of the challenges that we've seen with the market so far is traditional institutions struggle to buy a perpetual preferred equity because it's perpetual in nature.

[00:03:31]They they can't it's difficult for them to wrap their heads around it and it does doesn't fit within mandates. Now, if you put it into a different wrapper and slap a term on the end of it and protect it by an equity trunch and then the probability that you can go get it rated and have it in a familiar wrapper looks a lot more attractive to a traditional institution. Now, one one other thing that you can institute here is, you know, equity trunch. I like to call this amplified digital credit. I'm just saying amplified Bitcoin, amplified digital credit. and then investment grade digital credit that sits senior.

[00:04:06]And you you can put in a reinsurance buffer layer. And this might be a little complex for folks, but uh the idea is you bring in a diversified capital source to provide even more protection for that senior trunch to get it a higher probability of getting raided by a rating agency. I I think this is a a really large idea. Um so yeah I think that's I think that's the horizon of opportunity for digital credit.

[00:04:34]>> Yeah. So um this idea of tronchain right is definitely something that I think a lot of people are thinking about. So I'll turn this question over to Tyler like from the asset manager side and certainly it's time to like talk about you know what UTXO had introduced yesterday. Um, so if you could give us some insights on that from the asset manager side, uh, what are what kind of structures are you guys looking into and what do you anticipate this industry to do over the next two years?

[00:05:02]>> Well, I got to thank CJ and and Jeff for kind of giving giving my pitch for me, but uh, yesterday at UTXO investor day, we announced a structured credit fund um, built on on this exact concept. And I think the uh uh kind [clears throat] of the the key insight you shared, Jeff, is really these perpetual preferred securities are uh as as widely loved as they are in this crowd, in this room, they're still like preferred securities are still a very niche product on Wall Street. And so even though we call them colloquially digital credit thanks to Mike, uh they're not true credit instruments and they can't be rated in the same way that a credit product like a CLLO is. And so it's really this financial engineering to transform the digital credit products into true credit products that have risk capital or a first loss buffer or a over collateralization [clears throat] to try to engineer something that an issuer hasn't been able to quite yet today or maybe can't um being in the issuer seat which is like a a a zero true like digital T bill equivalent. And I think um what we introduced is a a first stab at that uh that we can evolve and and grow over time. I think getting it getting it rated, getting it um packaged in more instruments, getting it exchange listed even would all be significant enhancements. And there's also the opportunity that comes with it to then build out essentially a a true yield curve for digital credit with different different duration different yields. And so, uh, you know, this asset class is maybe 18 months old, uh, in total, and I think we're still very much at the the first inning. And in terms of really pulling true, uh, institutional allocator capital into it. You know, we heard from Fong that um, stretch ownership is uh, 80% retail today. It's uh, growing that to reflect credit markets, which are overwhelmingly institutional. um that presents a massive opportunity for growing this space.

[00:07:11]>> And I just want to add on here, you're taking elements, this idea takes elements from the existing private credit market. So what do we know? If you Google private credit, you'll see, you know, all all of the news headlines about people exiting private credit. Now what you're doing is creating a a private credit structure. The senior trunch could be a private credit structure but it's backed by a transparent asset that you can calculate the risk 247 365 and it's paying a rate higher than any of the other you know investment grade securities potentially.

[00:07:38]So it's uh you're taking elements just as you know Michael and the innovation of amplified Bitcoin and digital credit you're taking elements of existing structures that already exist and you're applying it to the instruments that have been created here. So it's really just these aren't necessarily novel things.

[00:07:56]They're just put together in an elegant way.

[00:08:00]>> Okay. So I want to keep this panel very objective. So we're going to go through some uncomfortable topics. What do you what do you three see as like some of the risks that are developing within this space? Um how could things blow up if they do? And how are you guys monitoring it? So from CJ and Jeff's perspective, you guys are issuers. How are you monitoring that like layer two, the digital credit layer? Um, and how layer three products could potentially create these rippleon effects to it and for Tyler like are there any opportunities to these risks that exist?

[00:08:36]>> Sure, I can start. I think so there are two layers of risk. One would be at the issuer level, let's say at Strategy or at Strive's balance sheet. And has the issuer issued too much digital credit relative to how much Bitcoin they have?

[00:08:52]And we call this either the leverage ratio or amplification ratio. And you want to manage that very carefully. You want to make sure that you consistently pay the dividends and make sure the fixed income stream never stops. So that's one layer of risk. And the mitigation of that is making sure your leverage ratio stays healthy. So you don't overlever and you don't get over amplified and don't let your equity buffer like MSTR become too thin. And then on the layer three side which is uh the crypto projects or RAFI projects that are being built on top of digital credit. I think the important thing to see over there from a risk perspective is the buildup of leverage and how much is being held in different pools that have a lot of unhealthy leverage being tacked on. And you could argue that it could happen either in the crypto space or the trafi space. But the theoretical risk would be that everything is playing out very well. 6 months go by, 12 months go by, 18 months go by, bit Bitcoin goes to 200,000, $400,000. Wherever there's a crash, sentiment drops, people start exiting. And some of these projects that have not been engineered well where they have credit risk or a run on the bank bank kind of risk and then people are exiting then that leverage on that layer starts unwinding and they become forced sellers of their assets which would be stretch and in that situation perhaps the price of stretch or the price of SATA dips below par for a slightly elongated period of time. you know, it goes from 100 to 99, maybe to 98, stays there for 5 days or 2 days or maybe longer. It all depends on how the crash is. And you don't want to be caught offside over there holding it, thinking you would liquidate all of it on one day at 100. So, you need to manage your risk correctly that way. But I think the important insight is all of that risk stays at that layer. It doesn't transcend down into the issuer layer because even if people are selling the digital credit in the market, they will be selling it and there'll be other buyers that will buy it because they're getting a lower price, higher effective yield, but it doesn't impair the Bitcoin on the balance sheet of the issuer ourselves. So, we are not a for seller of Bitcoin and as long as Bitcoin does its thing, stays volatile but has long-term price appreciation prospects.

[00:11:09]We just keep funding the dividends month on month, month on month and these small-term fluctuations, they just selforrect and selfheal in the market and the leverage gets built up and the leverage unwinds and the leverage gets built up and unwinds and the whole ecosystem just keeps maturing and keeps becoming bigger. So, that's the way I at least personally think about the risk but happy to hear thoughts from Jeff and Tyler. Yeah, you you bring up a really good point that layer three that layer three leverage that could be built up in the ecosystem. It's the Bitcoin market is actually really insulated from layer 3 because if there's any blowups that happen in the layer 3 ecosystem on any of these other token projects that wouldn't hit Bitcoin at all. It it may hit Stretch or Seda, but that's a a short-term price uh impact. It has nothing to do with the underlying balance sheet of the issuer. So the the largest risk is thinking about the issuers's credit quality and you think about what is credit quality and you mentioned these aren't typical credit instruments but if you don't have debt on your balance sheet it is a credit instrument you're underwriting credit risk like these are hybrid products hybrid vehicles so how do you think about the risk profile well the risk profile is very fascinating actually because it's it's very mathematical you can think into uh Monte Carlo simulations and and running mathematical projections of what the future looks like based on some of the past and your future underwriting of the of the Bitcoin on the balance sheet. And the the thing that becomes very interesting and we're in a little bit of a unique scenario compared to MSDR because we have $10 million of debt on our balance sheet. We have a 1% leverage ratio. You guys have 8 billion on your balance sheet and it's it's something that you guys may have to take a make a decision on. Uh so that that makes our view of risk slightly different. Um, so we we're really focused on how can I make sure that we could pay this dividend into perpetuity. Like that is our product. It is your iPhone. It is our Samsung Galaxy, right? So, we are we are very focused on underwriting the long-term perspective of Bitcoin. We are looking at every mathematical formula you probably could ever look at. I'm spending over $100 a day on the best AI tools possible to run the mathematical formulas behind the scenes. And we are managing this like uh an insurance company or a bank would be managing future liabilities. We are forecasting out into the future. We are making conservative assumptions. If you were to look at the long-term the 200E moving average of the price of Bitcoin, the 200E moving average has been a line straight up into the right compounding at 30 to 32% annually over every single horizon that you look at. So, thinking about a product that's paying 13% annually on a that's powered by an instrument that's going up uh 30 to 35% compound annually on a 4-year moving average. We feel comfortable with underwriting that uh that instrument, underwriting that product.

[00:14:01]>> Jeff, I think your your insurance background is really uh shining here. Um uh you you really touched on I think issue risk being the the biggest one and this is something our team's also done a lot of work on at UTXO that trying to come up with what is the what is the Moody's or the S&P what's the what's the the rating methodology that should apply apples to apples to all digital credit issuers. So I hope we can share some more research around that in the future.

[00:14:27]And then what CJ mentioned, I think that's really the the risk that's top of mind for us, especially as we're designing products that hold or maybe use leverage on on digital credit instruments, which is how can you avoid being a fixed uh a force seller uh and and a unorderily unwind into these instruments and you know with with stretch has uh really cracked the code on liquidity. I think trading 360 uh million dollars a day uh currently, but uh a lot of the newer or smaller instruments have less liquidity and especially say around an X dividend date, there is still some of that embedded volatility and so you want to avoid a scenario in which that becomes a cascading sell pressure and the liquidity dries up and you have to sell into lower and lower liquidity and you could see um you know a 10% DPEG over the course of one day like we've seen in some of these digital credit instruments in the past but that could become very destructive in a portfolio if you don't engineer around those risks. So managing the liquidity managing the duration and then having healthy issuers uh at the foundation is the holistic framework uh that we're really trying to engineer for >> and it really boils down to like what is risk is price volatility risk or what's the purpose of holding the instrument?

[00:15:51]Is the purpose of holding the instrument uh taking a long-term perspective of the instrument? Like it's a perpetual. Are you holding it for a long term? If so, does that price volatility mean anything to you? Maybe, maybe not. So, it kind of comes down to portfolio construction and viewing like if you're a trader, yes.

[00:16:09]Like you care about that price volatility because you you may be arbing in between two instruments or arbing an X dividend date. But if you're a a long-term holder and you understand the relative risk profile, it comes down to like what is the risk? What is the risk that I'm unable to pay this dividend into the future? Actually, Strategy's website, they've got a whole they've got a column on their credit profile. It's the it's BTC credit and BTC risk. And it shows effectively like a credit default swap calculated risk model where you can make an assumption on your your price of Bitcoin and the volatility of Bitcoin and an effective uh probability of not being able to pay the dividend in the future. It's it's just so incredibly low if you take very modest assumptions on Bitcoin Kagger and Bitcoin volatility.

[00:16:53]And when you're comparing the two instruments, the credit spread of the two instruments, they're actually very close to each other because you're comparing tail risk of two instruments, they're not they're not they're vastly not huge hugely different risk profiles.

[00:17:06]So let's talk about let's uh build a credit model for these things.

[00:17:09]>> And and tail risk is another thing to consider. And you know the the great news is the more issuers we have to come to market, the more diversification you can build. Even though there's the Bitcoin correlation kind of underlying all of it, but if you can package that in the same way with some tail risk, some left tail hedging on Bitcoin, let's say, or on a credit default swap or a common equity, can you improve the risk adjusted returns of the portfolio overall? And I think there's absolutely an opportunity to do that.

[00:17:39]It comes down to Marowitz's modern portfolio theory, right? like a risk return and these products have a very fascinating risk return profile that could fit into any any port.

[00:17:50]>> I'm also curious Jeff if I can ask you like what are the other distributions for Bitcoin's price into the future that you like to model out to assess the risk on these credit instruments or the credit spread because we have a great model. It's on our website strategy.com.

[00:18:07]You go to the credit tab as Jeff was mentioning. You input what you think Bitcoin's price performance will be in the future and what the volatility will be and then you can see the implied risk probability for each of the credit instruments including stretch. But for now, it's a simplistic model in the sense it's assuming a logn normal distribution of the price into the future. And at least in my head, I'm trying to cook up these different more enhanced versions of the model where you can actually maybe enter a natural language prompt into it and say this is my expectation of what Bitcoin will do in the future with this probabilistic range and then you know you just run Monte Carly simulations on the back end and it spits out the percentage probability that things went bust or your common equity buffer went to zero.

[00:18:50]I I know you've been posting interesting things on Twitter, so I'm waiting for you to open source all of that so we can steal it.

[00:18:55]>> Yeah, I could do that.

[00:18:56]>> Inspired from it. [laughter] >> Give us some demand. Yeah. No, uh the the the there's there's two components.

[00:19:02]I see. You've got a historical experience component where you go back test any of these instruments over time and you you kind of think about historical experience of the instruments over any horizon. And then I also see a forward-looking Monte Carlo simulation using multiple different um probabilistic models to give you a distribution of outcomes. So you can start to calculate uh relative tail risk. This is a this is a model that I've taken from the reinsurance world.

[00:19:27]So we've got four different models of Monte Carlos depending on historical uh historical data points over different time horizons. So you could select different horizons and different coverage ratios. And what makes it tricky is the the different construction of the of the capital stack cash reserve uh what is your reserve held in for us it's cash and and stretch and then is there any debt that sits senior how does that taken care of and how do you like formulate that into the models that's why we haven't open sourced it yet but um but yeah let's have a conversation >> I just have to butt in a little bit here right so when we're talking about price volatility risk and just running these Monty Carlos, I want to point out that the market actually has like a marketplace that prices Monte Carlo and price variance risk and it's called the options markets, right? So from the options markets, we can actually back out um the markets assessment of that risk measure. So I'd be very happy to see >> I've thought about this a ton. The options market on the on Stretch and SATA needs to evolve. People need to request $1 strikes from the options market. Right now there's a $95 strike, a $100 strike, and a $105 strike. So it gives you no data. It's three data points that are just completely irrelevant to the instrument. You're trading at a hundred within a penny spread. We need to know the $99 strike.

[00:20:48]We need to know the 101 strike. Ideally, you'd have a $9950 strike. And the the $99 strike, if that hits the market, it will be the most popular options chain in the entire market.

[00:21:02]>> I agree. I just got some work to do after this presentation.

[00:21:04]>> Get it, CJ. That's all for today folks.

[00:21:07]I mean that's all for this panel folks.

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