STRC Bull-Bear Debate: The 'Ponzi-like' Controversy Behind a 13% Dividend

Original translation: BlockBeats

Editor's Note: STRC is a perpetual preferred stock launched by Strategy (formerly MicroStrategy) in July 2025. It has a par value of $100, a floating interest rate, pays dividends monthly, and its price is anchored near $100 through monthly adjustments to the dividend rate. The product's design philosophy is to provide Strategy with a new financing engine for its continuous Bitcoin purchases, using what appears to be a low-volatility, high-yield fixed-income instrument (with the annual dividend yield rising from 9% to 11.5% over time).

Its capital-raising power over the past few months has been staggering. Launched in July 2025, the offering size was increased from an initially planned $500 million to $2.521 billion due to market demand, setting a record for the largest IPO in the U.S. in 2025, surpassing Circle. At the end of March this year, Strategy interrupted its 13-week streak of "orange dot" Bitcoin accumulation, with Saylor shifting his full attention to STRC. On April 10th, the funds raised from STRC in a single week were enough to purchase 8,000 Bitcoins. Saylor's own calculation is that as long as Bitcoin appreciates by 2.13% annually, STRC's dividends can be paid indefinitely.

However, this has also sparked controversy on Wall Street.

First, the "Russian nesting doll" effect began. In March, another Bitcoin treasury company, Strive (founded by Vivek Ramaswamy), used one-third of its corporate cash ($50 million) to buy Strategy's STRC. A Bitcoin-holding company used a third of its funds to buy the preferred stock of another Bitcoin-holding company. Strive's Chief Risk Officer, Jeff Walton (one of the participants in this debate), called STRC a "high-quality credit product with a superior risk-return profile compared to traditional fixed income" on Twitter. Critics summarized it more bluntly: a company holding Bitcoin uses one-third of its capital to buy the dividend certificates of another company holding Bitcoin—this isn't diversification, it's a nesting doll. Each layer promises double-digit returns to investors, and the confidence behind each layer's dividend payments stems from the same thing: Bitcoin cannot fall.

Second, Strive is playing the same game. While buying STRC, Strive raised the dividend rate on its own perpetual preferred stock, SATA, from 12% to 12.75%, and then pushed it to 13% a few months later. Structurally, Strive is using STRC (annualized 11.5%) as partial reserve to support a 13% product, SATA. 11.5% on one hand, 13% on the other, with Bitcoin's volatility sandwiched in between.

Third, MSTR's own situation wasn't actually relaxed either. MSTR's share price has been under continuous pressure this year. Bitcoin's significant correction from its highs last year once broke below Strategy's average cost basis of $76,000. Strategy's paper losses exceeded $7 billion at one point. However, management's choice wasn't to retrench but to "go all-in on preferred stock." Of the $42 billion ATM offering plan approved in March, half of the quota was directly allocated to STRC. Stopping BTC purchases on one side while aggressively issuing STRC to raise funds for buying BTC on the other. Coffeezilla is a well-known American investigative YouTuber focusing on scams. He made a video labeling the STRC/SATA strategy as "Ponzi-like." Strive's Chief Risk Officer, Jeff Walton, directly approached him, demanding a public debate, leading to this 90-minute confrontation. This is the full context for the conversation below. The following is the main text of the dialogue, moderately edited and organized by BlockBeats without altering the original meaning.

Coffeezilla: Today we have Jeff Walton. His company makes products quite similar to Strategy's. I made a video about this before, and the comments section absolutely blew up. On one side, people were saying, "Yeah, this is a ticking time bomb." On the other side, the Bitcoin crowd said, "Stevie, you've got it all wrong, you need to talk to someone who actually knows this space." Jeff, you just showed up. You're the Chief Risk Officer. In my video, I basically said this whole approach is too crazy: using an 11.5% preferred stock to support a 13% preferred stock. How does that math work out?

Jeff Walton: Let's go point by point. Let me start with a brief introduction so everyone has some context. I'm Jeff Walton, Chief Risk Officer at Strive. Before joining Strive, I was in the reinsurance industry. What's reinsurance? Simply put, it's "insurance for insurance companies." Insurance companies are also afraid of a single wildfire or hurricane wiping them out; reinsurance is the tool that helps them smooth out that volatility.

An insurance company is essentially a capital machine. On one hand, it manages capital, and on the other, it manages the future payout obligations corresponding to that capital, earning returns by taking on risk. A few years ago, I left reinsurance and joined a company working on Bitcoin because, in my view, Bitcoin is the digital form of capital—much more flexible and transparent than the forms of capital found in traditional markets.

The SATA you mentioned in your video is a perpetual preferred stock, annualized 13%, floating rate. It has several capital sources backing its monthly dividend obligation. An important data point: as of today, we have $1.2 billion in Bitcoin on our books, and only $10 million in debt. That means our leverage is only 0.83%, essentially negligible.

Coffeezilla: Wait, you didn't include the preferred stock in that leverage calculation, right? Equity isn't debt.

Jeff Walton: Correct, I didn't.

Coffeezilla: But you call it "digital credit." The name itself is quite misleading.

This is one of my issues with you all—not you personally, but both you and Michael Saylor do it. You use very "debt-like" language to describe something that isn't debt. Part of the reason I made the video is this: objectively speaking, as long as the risk disclosure is adequate, you can sell it however you want. But using vague marketing language means your average customer has no idea what they bought, and many have gotten burned this way.

You call it "digital credit," an average person hears "credit" and thinks it's debt. But you just admitted it yourself, preferred stock is not debt. You have no obligation to return the $100 principal the customer invested.

Jeff Walton: Let's look at it from another angle. What risk are you actually underwriting when you buy this thing? I have 0.83% debt on my books, less than 1%. The rest is all equity: $1.2 billion in Bitcoin, plus $12 million in cash. On the question of "Can I afford to pay 13% every year?", what risk are you taking?

Coffeezilla: You're taking the risk of Bitcoin falling, the risk of you guys getting hacked, the risk of you issuing debt in the future with higher priority than this preferred stock—a whole bunch of risks, all listed in your SEC filings.

Jeff Walton: Right. So you're taking credit risk: the risk of whether we can make these interest payments indefinitely, and the credit risk of the reserve assets on our books. That's why we call it "digital credit"—because what you're buying is credit risk. It's not debt; there's no principal to repay.

Coffeezilla: But that's not how people in the market understand it. I've listened to a lot of podcasts with you and Michael Saylor. You often compare this product to bonds, saying things like, "Bond yields are currently only X%." But bonds are completely different. If you hold a bond to maturity, you get your principal back—depending on the specific type, of course, but generally speaking, if you buy U.S. Treasuries, your principal is basically safe. Your product doesn't have that. Saylor even compared it to a bank account. It's definitely not a bank account. Your own disclosure documents clearly state: "This is not a bank account, nor is it a money market fund." So why do you externally market it as similar to bonds and money market funds?

Jeff Walton: I think it's fair to compare it to other credit instruments in the market. Look at perpetual preferred stocks issued by banks—that's a true peer comparison. But I admit there aren't many such comparisons made externally. At the end of the day, the credit risk of any instrument is just math. How do you calculate the credit risk of a Boeing bond? You look at the balance sheet, look at the cash flow, make an estimate of the company's future performance. That's it.

Coffeezilla: But the types of risk and protection mechanisms for each instrument are different. You can't just brush it off with "it's all math."

Jeff Walton: What I'm talking about is literally math. An institutional underwriter compares credit risk: what's the probability I'll get my money in the future? Any credit instrument requires this calculation. One approach is "Can I get my principal back?"—that's the logic of traditional bonds. Preferred stock follows a different logic: How long do I have to hold it to recoup my invested principal through dividends? This is the instrument's "duration."

If you buy JPMorgan's 5% perpetual preferred stock, you need to hold it for 20 years to get your principal back via dividends. That's the credit risk you're assuming. You don't have to worry too much about liquidity because it's perpetual; it's about how long it takes to make your money back. The logic of perpetual instruments not returning principal is entirely different from traditional bonds, but it's still math.

Coffeezilla: That's where we disagree. Calling it "digital credit" I think is misleading. Let's set that aside for now and talk about the actual credit risk of these things.

Let me be clear: I don't think you or MicroStrategy are going to collapse tomorrow. My view is this is a snowball that will slowly grow bigger. Liabilities accumulate, and eventually, they'll lead to a slow unraveling for you and MicroStrategy, leaving a lot of people trapped. Because the more successful this product is, the heavier the debt hanging overhead becomes.

Jeff Walton: Then let's talk math. This is essentially a math problem.

Coffeezilla: But this is where it gets really difficult to talk, because Michael Saylor will come out and say, "As long as Bitcoin goes up 2.5% a year, we can pay all our dividends indefinitely." He says this kind of thing often. But that's calculated based on the current STRC issuance. The more STRC is issued, the higher the required Bitcoin growth rate becomes, and you have to recalculate. This number is dynamic, you'd agree, right?

Jeff Walton: Not necessarily. If Bitcoin itself goes up, the balance sheet grows along with it, and the relative proportion of liabilities actually gets diluted. They have 818,000 Bitcoins on their books. When Bitcoin's price rises, the book value increases, and the leverage ratio decreases, not increases.

Coffeezilla: True, the leverage ratio goes down. But the same applies when it falls. That's exactly my point.

And I think there's a flywheel effect here. You issue yield-bearing products to raise money, and then you use that money to buy the asset that supposedly backs the product. The act of buying itself pushes the price of that asset higher, making it look even more stable.

But this flywheel works in reverse too. When you have to sell the asset to pay dividends, it creates selling pressure on that asset. That's exactly why the market reacted so strongly when Michael Saylor mentioned, "We might have to sell Bitcoin to pay dividends."

I know you hate the term "Ponzi-like." But one core characteristic of a Ponzi scheme is simple: using money from new investors to pay returns to old investors. Let me give an example: if MicroStrategy uses money raised from new STRC issuance to pay STRC dividends, would you consider that Ponzi-like?

Jeff Walton: Cash is fungible. Where the incoming cash comes from can be structured in various ways. The most fundamental difference between a Ponzi scheme and our capital management vehicle is: Ponzi schemes have no reserves. We do.

Coffeezilla: But isn't your reserve ultimately just the money constantly flowing in from new investors? New money comes in, you stuff it into the reserve, and use it to pay future dividends.

Jeff Walton: Ponzi schemes have reserves too, don't they?

Coffeezilla: No, they don't. Investor money doesn't go into any "reserve account." It's directly paid out to older investors.

Jeff Walton: They probably have some at the beginning, right?

Coffeezilla: Let me use an analogy. Suppose I take $100 from you, promise you a perpetual 10% return, but I do nothing with the money, just hold it. Now I have $100 in "reserve" on my books, and I pay you interest from this $100. Eventually, the reserve will be depleted, and I'll need to bring in new funds. That's the problem with Ponzi schemes; it becomes a debt snowball.

I admit there's a fundamental difference between you and a Ponzi scheme: Ponzi schemes usually involve deception. If your risk disclosures are adequate and customers are willing to take the risk, that's their business. But what I'm saying is that this structure has a fragility similar to a Ponzi scheme: unless Bitcoin goes up forever, it's unsustainable in the long run. And "Bitcoin goes up forever" is a terrible bet, in my opinion.

Jeff Walton: Is an insurance company a Ponzi scheme?

Coffeezilla: No, it's not.

Jeff Walton: Why not?

Coffeezilla: Because it has a real business that generates real cash flow. It sells risk.

Jeff Walton: Believe it or not, almost 100% of the claims paid out by insurance companies come from the premiums they collect. According to your definition, wouldn't insurance companies also be Ponzi schemes?

Coffeezilla: It's different. Insurance companies have real profits and real cash flow from the assets they underwrite. The proper comparison would be this: an insurance company that stops selling insurance and instead issues a "yield product based on something." You ask, "Based on what?" The answer is, "Based on our balance sheet." And how did the balance sheet come about? "By selling this yield product." That's what matches what you're doing. A real insurance company sells a clearly defined product. I insure my car, I pay a premium.

Jeff Walton: Isn't a preferred stock a product? It's a stock, a perpetual preferred stock. That is the product. Customers have a reason to hold it.

Coffeezilla: They hold it because they think they'll get dividends. That's not the product itself. Is Nvidia's stock the product?

Jeff Walton: Of course it is.

Coffeezilla: No, Nvidia's GPU is the product.

Jeff Walton: The stock is the product. Customers use it to store value. Our perpetual preferred stock is a product.

Coffeezilla: No. Is your insurance policy the product?

Jeff Walton: An insurance policy is a financial contract, a financial product, designed to compensate you when you suffer a loss. Our instrument is also a financial product. Put simply, it's a structured finance company. It's not that complicated.

Coffeezilla: The problem is the sales story is too simple, but the underlying risks are very complex.

Jeff Walton: Let's talk about the Bitcoin market. One of your underlying assumptions is that Strategy is the only big player in the Bitcoin market, which is fundamentally wrong. Strategy hasn't bought a single Bitcoin in the last 11 days. Yet, during these 11 days, the Bitcoin market saw $350 billion in trading volume, equivalent to 4.4 million Bitcoins. Strategy wasn't involved at all. This is a market with incredibly deep global liquidity.

So what's the scale of Strategy selling Bitcoin to cover monthly dividends? At a Bitcoin price of $80,000, they would need to sell 1,530 Bitcoins in a month to cover the dividends. The market traded 4.4 million in 11 days. 1,530 Bitcoins is nothing for the market.

The liquidity of the underlying Bitcoin is always there. They can sell Bitcoin to pay dividends whenever needed. But in practice, issuing equity has a lower capital cost. They can issue common stock or perpetual preferred stock to pay dividends, and they also have operating cash flow.

Coffeezilla: What people find weird is this exact process: you sell STRC to buy Bitcoin, and then sell Bitcoin to pay STRC interest. I don't want to use the P-word, but this looks like you're taking a non-yield-bearing