Michael Saylor: The Blueprint for A New Financial System

There are no losers here except

the 20th century antiquated oligopoly

that is selling inferior credit

instruments. But that's technology. The

human race has got to move forward. The

skeptics and the cynics, they choose to

be strategically ignorant.

>> 27 years ago, you didn't have trading

apps on your phone. And now it's even

more accessible, but yet the market is

still held back. The investment cycle is

a thousand times faster than technology,

real estate, anything else you've ever

seen before in your life. We're

literally selling 50 million an hour or

100 million an hour and buying the $100

million of Bitcoin the same hour.

>> Is there an appetite for

overcolateralized debt that pays 10%.

>> Just go walk down the street and ask a

100 people, would you like a stable

investment that yielded 10% tax

deferred? If you think the Bitcoin is

okay, I can jack your retirement income

from 30,000 to 120,000. So what we're

really talking about is creating a

annuity or a pension. And so what's the

offers like happily ever after? It's

social security. That's the product for

how many people? Like a billion. We need

to go build the world that we want. The

real interesting question for all of us

in the industry is

>> Michael, first of all, thank you for

taking the time to sit down with me here

in DC.

>> Yeah, happy to be here.

>> I've gotten to spend a little bit of

time with you, but we've never sat down

oneonone, so I've been excited for this.

There's one question I've always wanted

to ask you because I love history and I

know you majored in science of of

history history of science, but you also

have like the MIT um engineering degrees

in astronautics, system dynamics, and

history of science. So, it seems like

this unique blend and I'm just curious

how that the history so you sort of get

the history as well as like aeronautics

helps you maybe understand Bitcoin

better and maybe sort of see where the

future of Bitcoin goes.

Yeah, I I think

when you read history, I I've read a lot

of history of late uh in its original

form, you see historians observing

things. They're making observations.

They're noting it's suboptimal, like

observing 10,000 tragedies,

>> right?

>> Then occasionally you'll see

philosophers who are complaining about

it. So philosophers synthesize and they

complain about about what they don't

like, right? or they lament that it

isn't better. The Austrian economists,

the philosophers,

the engineers build machines that work.

Airplanes, ships, railroads,

right? Etc. Electric motors. Um the

scientists

they uh they divine the relationships,

the math that you know explains the

universe. and the physicist, you know,

and the mathematicians take that, you

know, to the extreme, right? Um, I I had

a background in all those things. I

think it was useful to have studied

physics. It's useful to have studied

math. It's useful to have studied all

the sciences, the engineering

disciplines which get deep in

thermodynamics and mechanics. And I

think it's also useful to have studied

history and philosophy and the history

of science is particularly interesting

subject because it goes back and looks

at the histories but it's extrudes it

through or or filters through a

scientific lens like like the the

classic non-scientific historian says

this happened and this happened and and

that was suboptimal,

>> right? And the history of science

historians says that happened because of

this, that happened because of this, you

know, guns, germs, and steel, right?

That the the Europeans didn't just show

up to the new world, and then they

conquered it. They showed up to the new

world, brought a germ, and everybody

died,

>> right?

>> They didn't have to conquer it,

>> right? 90 95% of the natives died, you

know, and that's that's actually a, you

know, a biological explanation for what

happened. If you don't understand, you

know, the the the science of immunology

or you don't understand germs, you

couldn't explain it, right? Um and then

you know if you think about the impact

of steel what's it take to create steel

and explosives and gunpowder

you know and um so the history of

science

is all about how technology dynamics

uh channeled the course of human history

and I think the reason it's uh important

to Bitcoin is is you can't really

understand Bitcoin if you're not an

engineer if you don't understand

engineering systems engineering, control

systems, servo mechanisms,

uh st system stability.

You got to understand all those concepts

intuitively. If you don't understand

thermodynamics,

you know that the the people that are

pure computer scientist who are weak on

physics and engineering and systems

oftentimes they create rub Goldberg

devices in code that right

>> that a hardcore engineer wouldn't build,

right? And so you can't just be a coder.

And of course, if you're a pure engineer

and you reduce the world to I built a

ship or I built a I built a gun, but you

don't consider the implication of the

ships and the guns on the course of

economic and political history,

>> right?

>> Then you don't really understand Bitcoin

either because you have to understand

the history of money and the history of

economics and mercantile networks and

yeah. Yeah. The idea the idea credit

networks are local like the a German

prince can have a credit network a

British prince can have a credit network

but gold or silver networks tend to be

transnational

right that uh the French the Germans the

Brits the Persians and the Chinese could

all agree to trade on a silver network

or a gold network but not on a Chinese

paper money network. And so when you

start to understand

the uh the impact of technology that's

metallic money on economic networks and

then the impact of a ship with guns on

it, you know, on that economic network

or the impact of of not having immunity

to all the germs the Europeans brought

or the impact of not having steel and

being stuck in the stone age. All of

those things have an impact on the way

the world evolved and I think Bitcoin is

it's crossing every one of those fields

right

>> right now

>> right yeah so being able to synthesize

that information and understand the

cause and effect and then looking at the

changes today as you said sort of a

multinational asset strong as steel fast

um etc then you can start to it seems

like you could start to see maybe the

future that that creates better than

most people

>> well I just I I think if you've got a a

broad synthetic

educational background, if you've

studied a bunch of different subjects,

had a lot of experience, you appreciate

Bitcoin more. If you have a very narrow

background,

if you understand economics or if you

studied economics but never studied

engineering, you'd be missing half the

equation. And if you're an engineer that

doesn't understand economics and never

been in business or never traded

internationally or never traveled,

>> Yeah. or didn't know anything about

history.

>> Yeah.

>> You know, you would also understand only

a part of the equation. So, I just think

you need to know a lot of different

subjects in order to fully appreciate

>> Yeah.

>> the impact and the significance of the

invention of Bitcoin.

>> Yeah. Which is then in your professional

career building technology companies.

And so you kind of predicted a lot of

the technology companies that have grown

in some of your books that you wrote in

the past, but then also navigating those

tech companies through the capital

markets then sort of gives you a new

perspective to see the deficiencies in

the current capital markets that we have

today and then help you kind of think

about fixing those with jumping into

sort of like this refinery model trying

to um see solve some of the deficiencies

in those capital markets the way

companies acrew capital. Yeah, I think

what can be said of the capital markets

is um 99.9% of the companies were locked

out of them,

right? So the first question you got to

ask is how come there's 40 million

businesses in the United States but

there's only like 4,000 publicly traded

companies,

>> right? So don't have access to the

capital.

>> Okay. So it doesn't sound like a like if

I said only 4,000 companies have

telephone and internet access and the

other 40 million businesses don't, what

would you say? Yeah, that'd be a

problem.

>> Yeah. What? Yeah. What if I said 4,000

companies have bank accounts and the

other 40 million don't?

>> Right.

>> So, so you just start with the

observation that the capital markets

can't be all that effective if 99.99%

of the companies can't access them,

>> right? And you know beyond that the

other observation is if you look at the

companies that are in the public market

if you look at the the thousands of

publicly traded companies it's like 20

that control all the attention

>> right

>> and uh so you know most public companies

are zombie companies they're

uninteresting

no one cares about them they carry a

huge burden of regulatory compliance and

um they don't get the attention they

deserve. So, one could characterize the

capital markets as being um unwieldy,

ineffective,

right? And it's, you know, and what is

that? They're 20th century instruments

that never really evolved in the 21st

century. You got to ask the question,

why does it take three years to raise

money? If you have a small business, why

can't you do it in three days,

>> right? Why does it uh you know why does

why is it impossible to take custody of

your own stock shares?

>> Why is it impossible to trade shares on

Saturday afternoon,

>> right?

>> Why is it impossible to transfer things

globally?

>> You know, why is it why is it that you

can actually take a million dollars of

cash and get paid interest on it, but

you can't take a million dollars worth

of stock shares and get paid for that?

you know why why you know so there are

all these things that just are very

inefficient that we just take for

granted but they don't work very well

>> right a lot of that is technology being

inefficient and here we're at this in DC

at this Bitcoin policy event um and a

lot of that might also be regulatory

right so a lot of that regulations maybe

prevent some of that

>> yeah generally of oftent times whenever

you have a highly regulated industry um

progression stops

>> right the banking. If you look at the

credit markets, they seem to be stuck in

to they're stuck in a mode that was

probably

probably uh modern 30 years ago like

they're 30 40 years old and they haven't

advanced. If you look at the equity

markets, it's the same way. For example,

you know, my company came public in

1998.

We traded on NASDAQ from 9:30 in the

morning till 4 in the afternoon.

The year is 2025. We trade on NASDAQ

from 9:30 in the morning till 4 in the

afternoon,

>> right?

>> What's the difference between the way my

stock trades today and the way it traded

27 years ago?

>> Yeah.

>> Nothing.

Nothing.

>> Right. Could you imagine any other

industry where there was no material

change for 27 years?

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of the differences, I mean, 27 years

ago, you didn't have trading apps on

your phone, and now it's even more

accessible, but yet the market is still

had held back even though retail could

access it easier.

>> Yeah. uh because you know the

traditional finance industry is highly

regulated and it has it has uh settled

into a comfort zone and you know the

forces of progression are in the crypto

industry. The most of the force in the

traditional finance industry are forces

of regression like that the the

knee-jerk reaction is why shouldn't we

do this? Why is this a bad idea? If you

if you listen to all the Gendler

speeches for the last four years, it's

always why this is a bad idea,

>> right?

>> Right. Like what why can't uh why can't

I issue a token, you know, for my small

business over the weekend? Well, we got

to protect the investors,

>> right?

>> Okay. So, that's why we're going to

disenfranchise 40 million companies from

being able to raise money because the

people that might want to invest in them

might not be qualified to make that

investment. So, it's kind of like, well,

why don't we give cars to people below

the age of 60? We got to got to protect

the pedestrians or protect the, you

know, it's like if you if you took that

rule and you applied it to phones or

cars or websites or flying in an

airplane, we would have no automotive

industry. We'd have no aircraft

industry,

>> right?

>> We'd have no telephones. We'd have

nothing because we wouldn't do anything

until we sure that no one would be

harmed by the doing of the thing,

>> which is impossible. We wouldn't even

have fire, you know. We wouldn't want

someone to get burned. We wouldn't have

electricity. People might get shocked,

>> right?

>> Got to protect the, you know,

>> Yeah.

>> got to protect the people that might get

hurt by the new idea.

>> So, that's pretty much the existing

status quo in in traditional finance and

it has been for 30 years.

And with the advancements of technology,

I'll get I want to get more into the

politics side and and you talked earlier

on your keynote about maybe the last 12

months of this big political winds that

shifted. Um but kind of sticking with

some of the ways that technology is

changing. Um on your keynote you said

you spent I think about 30 years trying

to come up with a billion dollar idea

which you did. Um and then couldn't come

up with the next one and now half a

dozen billion dollar billion dollar

ideas in the last you know year or two.

Um, and that's sort of in in New York at

the unconference you talked about this

refinery model and standard oil sort of

taking this raw asset like Bitcoin and

creating products off of it. And so

you're creating now products off of it.

Um, that's the model to do this. What

what would be the kerosene of this

industry?

>> Um, kerosene represents most highly

refined crude oil. It's like it's pure

liquid energy, right? It's jet fuel. You

put it in rockets. like you can't refine

oil more than kerosene. So, it's an

important metaphor. It's the cleanest,

highest grade distilled

uh liquid energy like pure grain

alcohols, right? Like that's what you're

talking about there from a from a bunch

of uh potatoes, stack of potatoes, and

outcomes pure grain alcohol. Um the

equivalent of kerosene in the bitcoin

industry is a treasury preferred credit

instrument like stretch. So uh on one

side you have digital capital bitcoin

and uh bitcoin is a long duration

volatile high energy high performance

source of capital. um long duration.

Think of it in terms of like 240 months,

like 20 years. Like you should, if you

want to get the the optimal performance,

you're going to hold it for 20 years.

Like it's a it's a 10 to 20 year type

investment,

>> right?

>> High volatility. Right now it's about 45

bowl. Implied ball, it's been 50, it's

been 60, it's been 70 bowl. And um high

performance, you know, appreciating 50%

a year,

>> right? So that's the raw commodity. Um

what happens if I uh if I strip away the

volatility, strip away the risk, strip

away or compress the duration,

translate it to a given currency and

extract the yield. Right? That's what a

treasury credit instrument or treasury

preferred is. So that's what stretches.

The idea is

you build something that's got one

month. Like I'm going to give you 10%

dividend yield for one month. Like the

duration is one.

>> Yeah.

>> The yield is 10%. The currency base is

US dollars,

>> right?

>> Uh the spread is like if if the

risk-free rate is 400 basis points and

that's like a 6% 600 basis point credit

spread. I've extracted a 600 basis point

spread for the next month in US dollars,

>> right?

>> Maybe I 5x overcolateralize it. Maybe I

10x if I you know raw Bitcoin is like

one to one. It's like if I have a dollar

Bitcoin, I have a dollar of Bitcoin. If

Bitcoin trades down 50%, I've lost half

my money,

>> right?

>> But if I 10x over collateralize

something, I have $10 of Bitcoin, I have

$1 of stretch. If Bitcoin trades down

50%, I still got a dollar of stretch. If

Bitcoin trades down 90%, I still have a

dollar of stretch. The statistical odds

of Bitcoin trading down 90% or like

point something, right? It's a small

percentage. So by over collateralizing

you strip away the risk

by structuring it to adjust uh if you

put a set of adjustments

uh or representations below par below

100

you start to strip away the volatility

on the downside. If like with stretch

what we did is we put in a call option

at 101

>> and then we told the market we're going

to sell it actively at 100 or better

right

>> like and then we also told the market

we're not going to sell it below 99 and

if it's below 99 we're going to raise

the dividend

>> right

>> okay so you're you're kind of collaring

this instrument

and then then the last point is we

created a preferred instrument where we

pay it monthly in cash and then we

adjust the dividend every month. So, it

turns out if you scan in the history of

preferred stocks or the history of the

credit markets, no company's ever issued

a preferred uh preferred stock where the

management has discretion to adjust the

dividend every single month. Like there

are some preferred that are floaters

where they set the credit spread at 350

basis points over sulfur and they will

float with sofur with the risk-free

rate.

>> And there are a lot that are fixed where

you set it at 7% and the principle will

trade up and down if sofur falls or

rises. But the idea that the credit

spread is completely variable

is a new idea. But by the way, not a new

idea in the world of credit because who

does this? Well, nation states do it.

>> The Fed

>> literally that's what a central bank

does, right? That's what every central

bank does. They set the interest rate on

their currency. Y

>> what we did was just copied, you know,

>> traditional bankers and we set the

interest rate on our currency which is

stretch. So that is the kerosene of of

the Bitcoin you know treasury company or

of the digital assets industry because

it's the it represents the greatest

degree of financial engineering just

like kerosene represents the greatest

degree of petroleum engineering right I

I've done the most uh refining I've

distilled the highest quality product

you could imagine for example you could

you could uh extract the same product in

yen. So I want to create a yen

instrument that's 10,000 yen that pays

you know a monthly yen cash yield or a

cash dividend. I change that every month

and now I've now I've created the

equivalent of kerosene for the Japanese

market. And of course what does

everybody want? Everybody kind of just

wants I've got some money I need to park

for the next 90 days. If I put it in the

bank, if I put it in the bank in Japan,

I get 50 basis points or less. I put it

in the bank in Switzerland, I get minus

50 basis points. If I put it in the bank

in Europe, I get 200 basis points or

less. If I put it in the bank in the US,

I get 400 basis points or less. And so,

what I'd like to do is put it in some

kind of structure where I'm going to get

my money back in nine months or six

months or whatever. The principal is not

going to move around, but I'm going to

get 10%.

>> Right? Everybody wants a bank account

that pays 10% instead of 4% or 2% or 0%.

>> And uh and so I think I think the most

interesting product that you can create

the most interesting digital credit

product is a Treasury preferred credit

instrument for corporate treasurers or

for retirees, right? Just, you know, and

how big is that market? It's like $30

trillion in the US.

>> Yeah.

>> Of just short-term treasury money. So 30

trillion in the US that's getting paid

sofur.

>> And uh the opportunity with digital

credit

is um you create a company, you hold

Bitcoin, that's digital capital. You

start to issue credit instruments on top

of the capital and you can decide uh how

much risk do you want to strip away. Is

it uh a BTC rating of two which is two

times over collateralized or is it 10?

>> Right.

>> Right. Two is less risk stripped away.

10 is more risk stripped away. Strip

away the amount of risk you want. Strip

away the amount of volatility. Uh the

smaller the instrument compared to the

overall collateral pool, the less the

volatility. And then there are a lot of

terms and conditions that you can put in

the instrument that would uh constrain

the volatility. So you decide how much

volatility and risk you want to strip

away. Decide how much yield you want to

give it. You decide whether you want it

to be in pounds or Canadian or euros or

yen or

>> whatever you know and then you distill

out you extrude the yield and the pure

you know boost over the risk-free rate.

Yeah.

>> And you offer that to the marketplace.

>> Yeah. I saw you ask it both at New York

unconference and then today at the

keynote just let me see a raise of hands

like how many people have a bank account

that like 10% and of course everybody

wants that. So we can see the demand for

that is

>> nobody in the world's getting paid five.

>> Right.

>> Right. Uh we created a product uh STRD

stride. It's the junior long duration

credit instrument. Right. Now it pays

about 12.6%

12.6% and so the average per but 12.6%

as a return of capital. So it's tax

deferred.

And if you put your money in the bank,

you're going to get 4% pre-tax, 3% after

tax, right?

>> So it it pays anywhere from three to

four times

as much cash flow.

>> Yeah.

>> So that those are really interesting

products.

>> That we're creating in the market.

>> Yeah. I mean, just in the US, we have 7

trillion sitting in money market

accounts just trying to earn a third of

that yield that you're paying out there.

And so then you have four different

products. And so not everybody wants

kerosene. Some people might want other

products. And then you've got Strike,

Strife, Stride, and now Stretch. And so

each one of those sits in a different

location that gives them a little bit of

a different variation of the kerosene.

>> Yeah. Pure kerosene like the the I would

think I would say the other ones are

kind of like gasoline or diesel or

plastic or or you know there or Napa or

there's a lot of other petrochemicals.

You know, the entire petroleum industry

is fascinating because out of a barrel

of oil doesn't just come gasoline,

diesel and jet fuel. Also, uh you get

acrylics, you get fibers, you get

polyester, you get lycra, you know, you

get PVC, you get the you get the stuff

that we make doors with it, we make

walls with it, we make pipes with it, we

wear it, we look through it,

we burn it.

>> Think Think about how profound it is.

Like just around this room, if you

glanced at the room, you'd probably find

there's probably a hundred or hundreds

of petrochemical products in this room.

>> Yeah. That have been created.

>> So, um, the possibilities are endless,

but if you come back to just what we've

done, right, we're just one company and

we're just we're showing what's

possible. Um, Strike was the first and

it is a convertible preferred. So strike

shows how you can you can extract any

amount of yield delta

duration

risk or volatility. So with strike we we

basically gave it about 35 delta that is

like 35% of the upside of the equity. So

you get you know you get an equity

component then you get like a right now

it it's like 8 and a half% yielding like

it pays 8% at par. Um, so we gave it a

dividend at 8%, we gave it an equity

component for some up upside

and then we made it cumulative and so it

gave it some seniority privileges and uh

that's for people that kind of just they

don't want to buy Bitcoin and be on the

roller coaster. They want to get I call

it a Bitcoin fellowship. It's like, you

know, it's like you buy it, you're

waiting for the upside and you're

getting paid a, you know, a living

stipen,

>> right?

>> While you're waiting, yeah, you know,

for the principal to appreciate. So

that's one instrument

>> because it will convert into MSTR at a

thousand

>> because it's got a conversion rate,

right? So, if you believe if you want to

hold something for 30 years, well,

you're going to get 30 years worth of

dividends and at the end of 30 years,

you're you're holding say for a $100

stock, you're holding a if you have a

one of these, you've got a $40 worth of

of equity when you buy the $100

instrument.

So that's for people that want some

upside with downside protection with

with guaranteed cash flow,

right? Uh which a lot of investors want,

right? I mean, a lot of investors if

they if they wanted max upside, max

volatility, you would buy the Bitcoin,

right?

>> But can I go 30 years without any cash

flow,

>> right?

>> Can I go 10 years without cash flow?

>> And can I stomach the volatility?

>> Yeah. And there are a lot of people that

just don't want the volatility, right,

for any number of reasons. So that's

strike. It it turns out that strike is

the most volatile of the four preferred

instruments because it's got that equity

component in it,

>> right?

>> And it's got longer duration and so that

means it's got more volatility to

interest rate forward curve and it's got

more volatility to Bitcoin price and

more volatility to MSTR price. Um the

second thing we did was Strife STRF and

that was long duration senior credit. So

it pays 10% dividend in par forever

and uh that means that um and it doesn't

adjust. It's like a it's like a you know

it's not a bond because it's a dividend.

It's better than a bond because in that

if you want cash flow because the

dividends get better tax treatment and

if it becomes if it becomes a return of

capital which is what it is right now

it's completely tax deferred. So

that's uh that's for someone who's a

long-term credit investor and it happens

to be senior in the capital structure.

So it so it it gets paid off before

everything else and it has penalty

provisions if we ever skip a dividend,

right? And so extremely riskadverse

institutional investors that want the

credit, but they want to be ahead of

everybody else in the stack, they would

buy that. Well, that's trading above par

right now. So, it pays like 9% effective

yield.

Okay? Because it's senior.

We followed that with a with the

identical instrument. Uh we basically

10% at par, but instead of cumulative,

we made it non-cumulative. And we made

instead of senior, we made it junior.

And instead of the penalty provisions,

we took them out.

>> So get a little more yield.

>> So what it does is it makes it

theoretically riskier, you know, to the

person studying the contract, but it

means it trades lower. So that trades

like in the 80s. So that that yields 12

and a half or 12.6%.

>> Right?

>> So the issue is why would somebody want

to buy the one without all the investor

protections in the in the security? And

the answer is because you get paid 360

basis points,

>> right?

>> So, do you want do you want 12.5 or

12.6% for the junior instrument or do

you want 9% to be senior?

>> Well, if Bitcoin,

you know, goes sideways or up and if the

company doesn't fail, then it's going to

cost you 3.6% a year for the rest of

your life to not trust us,

>> right? You see? So, so now you've

actually got there an actual credit

spread. If you're wondering what is the

equity premium between being senior and

then having having none of the

representations, well, you've actually

got the market telling you it's like 3.6

or 3.7% or something. It varies every

single day.

>> Yeah.

>> If you don't trust Bitcoin, if you think

Bitcoin's going to zero, you wouldn't

buy want to buy any of this. Right.

>> Right.

>> And so then it comes down to how much do

you trust the company,

>> right? And if you you know

people buy dividend bearing equities all

the time like every single equity if you

buy Verizon equity or if you buy a

telephone AT&T equity they pay dividends

but they're not required to. They could

suspend them without prejudice and

without penalty at any time.

So could Apple,

>> right?

>> Do you trust the company?

>> You know that if they suspend it, their

stock's going to take a hit, but

otherwise you're completely trusting

them. Your view is like, well, they

probably won't because the stock will

take a hit. And so the issue is with

Stride, will we pay the dividend? Well,

of course we will, but what what happens

if we don't? Well, if we don't, Stride

will trade way down, right?

>> But then we won't, but and then you're

like, well, why does the why would the

company care? It's like we want to sell

it,

>> right?

>> Like if it if if we actually default on

that obligation, then the instrument

isn't the capital raising vehicle for

us. And the the big idea is

unlike most companies that issue credit

apologetically in order to deal with a

crisis,

we issued credit strategically,

enthusiastically

with the intent that the credit is the

product. See, when Boeing issues

preferred stock, the product is the

airplane. They sold the preferred stock

because they ran out of money to build

airplanes.

We issue the preferred. the product is

the preferred. We didn't never run out

of money,

>> right?

>> We issued that, you know, why did you

sell a billion dollars of Stride? So I

could sell 10 billion dollars more of

Stride.

Why did you sell a billion dollars of

Strife so I could sell $10 billion more

of

>> Stripe? So we have a a very different

business model in that regard.

We created the stride so we could create

the credit spread because we literally

wanted to have an investment grade type

instrument, a senior one, and we wanted

to have a junior one because there's one

class of investors that want the junk

credit, but like they want 12% yield,

right? It's like it's very simple. Do

you trust the company? Do you want 12

and a half percent? You know, do you

half trust the company and you prefer to

take the 9%. Well, ironic there's

there's markets for both and they are

not the same investor. Yeah.

>> There are days when everybody wants to

buy Strife and they don't want Stride

and there are other days when they want

to buy

>> Yeah.

>> Stride. And so so that was part of

building out the risk curve. And then

the last thing we did stretch was a very

different idea. Instead of paying an

eight or 10% perpetual dividend forever,

we just said, "Hey, let's actually

reduce this to one month duration,

right?" And so we're only promising to

pay this dividend for a month. The other

one is a promise for a 100red years. And

so theoretically the Macaulay duration,

the theoretical duration on the other

instruments ends up being between like,

you know, 8 and 20 years or eight and 15

years. It's very long range.

Think of a lever that's 120 months to

240 months long and you know you have a

little change in interest rates and

that's a very big lever to the good of

bad but with stretch the idea is a one

month duration of course inherently

that's going to be less volatile

>> right

>> and you're like well I'm not going to

get capital appreciation if sulfur dives

by 400 basis points I'm not going to

double my money well exa exactly it's

the treasury instrument you're not

buying it to double your money. If you

wanted to double your money, if sulfur

dives, you would buy Strife,

>> right?

>> Right. That's the instrument for the

credit investor that wants to actually

ride it up when interest rates fall or

wants to do the opposite when interest

rates rise. That's a different

instrument.

It turns out that most people, right,

corporate treasurers, retirees, retail,

most people, they're not really

interested in being long duration credit

investors.

>> Yeah.

>> Like ask the ask the average person, do

you have a bank account? Yes.

Um, do you have a 30-year

uh

Treasury bond?

No. Like the difference is like 50 to1.

Stretch came last. But ironically,

stretch is the best piece of financial

engineering and it's probably the most

uh universally applicable product

because what you're doing is just giving

people pure currency cash flow. Pure

pure currency yield without the

volatility, the risk, the duration.

>> Yeah.

>> Or the or the delta.

>> It's like, you know, some people want

delta like I want the 30 I want 30 or

40% of the upside of the common stock.

Other people don't. Other people like, I

want nothing to do with the common

stock. I just want you to pay me 10% on

my money until I ask for my money back,

right? That's what they want. It's a

very different uh financial instrument

for a different investor.

>> You you mentioned how when Boeing issues

debt, it's because they need the money.

And when you do it, uh when Mike when

Strategy does it, you're issuing the

debt because that's the product. And we

think about like if I'm buying the debt

of Boeing, then I'm trusting that their

investment into their airline will have

enough cash flow maybe to pay me in the

future versus I'm paying you, but you're

buying the asset. So, I'm not dependent

on future cash flows because I know you

have the asset and the debt is over

collateralized.

>> Yeah.

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>> Well, if you look at the credit markets,

you've got corporate credit. That's

basically a credit issued against future

cash flows of a company. You've got

investment grade corporate credit from

Apple or Microsoft. And you've got

distressed corporate credit from quasi

bankrupt companies. You've got junk from

companies that can barely cover that

cash, right? And so that's corporate

credit. You've got mortgage back credit.

It's it's when you're basically issuing

credit back by by mortgage payments of

homeowners.

>> Yeah. We saw that play out in 2008.

>> Yeah. And and and you know, it's like

the good news, bad news is if it if it

yields a lot, they probably can't afford

to pay it. And if it yields a little,

you're not getting much yield, right? So

either either they're not going to

default, but it doesn't pay you much or

it pays you a lot and they're probably

going to default. And that's the great

financial crisis. And we learned that.

Well, then you've got municipal credit,

you know, a little bit safer, but it

pays nothing, right? Like almost no two,

three, very little yield in municipal

credit backed by cities and projects.

You know, you've got bank credit that is

uh when you deposit a million dollars in

the bank account, you bought bank

credit. you know, they're selling you

bank credit and they're paying you the

sofur rate or the risk-free rate,

>> etc. So, that's there's that, but you

know, it's pretty uncompelling in most

countries.

>> I mean, the best is the US in

Switzerland and in Japan. It's like

nothing, right? It doesn't pay anything.

Uh, and um then you've got sovereign

credit, fiat credit. you know, the

government of the United States or the

government of the UK issues its

sovereign debt and it's and that's

backed by the cash flows of the country

in theory, the taxing ability of the

country or just the ability of the

country to print its own currency.

And when the country has a collapsing

currency, like Turkey, those interest

rates have to be very high, but the

country's currency is collapsing and the

issue is are you going to want what are

you going to be able to buy with the

currency? or the industry going to get

paid,

>> right?

>> So really the big bra when's the last

time in a hundred years there's a new

form of credit.

Every one of those credit instruments,

they've all been around for a while. You

could argue that mortgage credit evolved

into a higher form with Freddy Freddy

Mack and Fanny May. Right? when what

happened the government started

underwriting the credit risk of

mortgages that drove down the rates that

created systemic risk right so that

changed a little bit but but the idea

that a company's going to borrow money

or uh someone's going to mortgage their

property or a government's going to

borrow money or a city's going to borrow

money none of those are new ideas right

I think you can trace them all back for

hundreds if not thousands of years so

the idea then you know what was the

quasi stable idea issue credit on gold

on a monetary asset. Well, that you know

we saw that in the 17th century, the

18th century, the 19th century, even the

20th century. You could argue you know

British sovereign debt, French sovereign

debt, they were all goldbacked credit

instruments and they were all backed by

various amounts of gold but it was

almost never one to one. It was always

like under collolateralized and

eventually it would probably got down to

5% collateralized and then 1971 and

that's the end of the gold back credit

era. Right.

>> Right.

>> And so now you have digital credit, you

have digital gold, you have Bitcoin,

Bitcoin is digital gold, digital

capital.

The killer use case of digital gold is

issued digital credit instruments.

And the aha the aha moment is any

company any publicly traded company can

create a digital credit instrument with

any degree of yield duration delta

or risk

and to a certain degree with a man wi

with any amount of volatility that they

want. Right? If you want extremely low

volatility, you can't create a lot of

it. Like if if you have a hundred

billion dollars of capital, can you

create a hundred billion dollars of