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

Original Translation: Odaily 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, and pays monthly dividends. Its price is anchored near $100 through monthly adjustments to the dividend rate. The product's design concept is to provide a new financing engine for Strategy's continuous Bitcoin purchases by using a fixed-income instrument that appears low-volatility and high-yield (with the annualized dividend rate increasing from 9% to 11.5%).

Its capital-raising ability over the past few months has been staggering. Initially launched in July 2025 with a planned size of $500 million, the offering was bid up by the market to $2.521 billion, setting a record for the largest IPO in the US in 2025, surpassing Circle. At the end of March this year, Strategy interrupted its 13-week "Orange Dot" Bitcoin accumulation cadence, as Saylor shifted his full focus to STRC. On April 10th, the funds raised by 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 perpetually.

But this has also sparked controversy on Wall Street.

First, "Russian nesting dolls" have begun to appear. 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 one-third of its capital to buy preferred shares issued by another Bitcoin-holding company. Strive's Chief Risk Officer, Jeff Walton (one of the parties in this debate), called STRC a "high-quality credit product with a better risk-reward ratio than traditional fixed income" on Twitter. Critics put it more bluntly: a Bitcoin-holding company uses one-third of its funds to buy dividend certificates from another Bitcoin-holding company - this isn't diversification, it's nesting dolls. Each layer promises double-digit returns to investors, and the confidence to pay each layer's dividends comes from the same thing: Bitcoin cannot fall.

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

Third, MSTR's own situation isn't easy either. MSTR's stock price has been under continuous pressure this year. Bitcoin significantly retraced from its highs last year, briefly breaking below Strategy's average cost basis of $76,000. Strategy's unrealized losses once exceeded $7 billion. However, management chose not to contract but to "go all-in on preferred stock." Of the $42 billion ATM issuance plan approved in March, half the quota was allocated directly to STRC. They stopped buying BTC on one hand while aggressively issuing STRC to raise funds for buying BTC on the other. Coffeezilla is a well-known American investigative YouTuber focused on scams. He made a video characterizing the STRC and SATA mechanisms as "Ponzi-like." Strive's Chief Risk Officer, Jeff Walton, directly approached him, demanding a public debate, leading to this 90-minute clash. This is the full context leading to the following conversation. Below is the main body of the dialogue, edited and organized by Odaily 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 it before, and the comments section was a warzone. One side said, "Yeah, this thing is a ticking time bomb." The other side, the Bitcoin crowd, said, "Stevie, you're completely wrong. You need to talk to someone who actually understands this." Jeff, you came straight to us. You're the Chief Risk Officer. In my previous video, I roughly said this whole mechanism is too crazy: using an 11.5% preferred stock to support a 13% preferred stock. How does that math even work out?

Jeff Walton: Alright, let's go point by point. Let me first briefly introduce myself so everyone has some context. I'm Jeff Walton, Chief Risk Officer at Strive. Before joining Strive, I was in the reinsurance industry. What is reinsurance? Simply put, it's "insurance for insurance companies." Insurance companies also fear being wiped out by a single wildfire or hurricane. Reinsurance is the tool that helps them smooth out that volatility.

An insurance company is essentially a capital machine. It manages capital on one side and the future claims obligations corresponding to that capital on the other, earning returns by taking on risk. A few years ago, I left reinsurance and joined a Bitcoin company. In my view, Bitcoin is digital capital – much more flexible and transparent than the forms of capital found in traditional markets.

The SATA you mentioned in the video is a perpetual preferred stock, with an annualized yield of 13% and a floating rate. It is backed by several capital sources that support this monthly dividend obligation. Here's an important data point: as of today, we have $1.2 billion in Bitcoin on our balance sheet and only $10 million in debt. That means our leverage is just 0.83%, basically negligible.

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

Jeff Walton: Right, it doesn't.

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

This is one of my gripes with you all – not personally, but both you and Michael Saylor do this. You use a 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 any way you want. But using ambiguous rhetoric in marketing confuses ordinary customers about what they are buying. Many people have gotten burned this way.

You call it "digital credit." The average person hears that and thinks it's debt. But you just said it yourself, preferred stock is not debt. You have no obligation to repay the customer their $100 principal.

Jeff Walton: Let's think about it from a different angle. When you buy this thing, what risk are you actually underwriting? 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% annually?", what risk are you actually 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 that has higher priority than this preferred stock, a whole bunch of risks. They are all listed in your SEC filings.

Jeff Walton: Right. So, you are taking credit risk: the risk of whether we can perpetually pay this interest, and the credit risk of the reserve assets on our balance sheet. That's why we call it "digital credit" – because what you are buying is essentially 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 quite a few of your and Michael Saylor's podcasts. You often compare this product to bonds, saying things like "bonds are yielding X% now." But bonds are a completely different thing. You hold them to maturity, you get your principal back – of course, depending on the specific type, but if you buy US Treasuries, the principal is basically returned. Your product doesn't have that feature. Saylor even compares it to a bank account. It's 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 all market it as comparable to bonds and money markets?

Jeff Walton: I think comparing it to other credit instruments in the market is fair. If you look at perpetual preferred stocks issued by banks, that's a genuinely comparable peer group. But I admit not many comparisons are made externally. The credit risk of any instrument, when you boil it down, is just math. How do you calculate the credit risk of a Boeing bond? You look at the balance sheet, you look at cash flow, you make an estimate of the company's future performance. That's it.

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

Jeff Walton: What I mean is math. Institutional underwriters compare credit risk: what's the probability of me getting this money in the future? Any credit instrument requires this analysis. One type is "Can I get my principal back?" - that's the logic of traditional debt. Preferred stock has a different logic: how long do I have to hold it to earn back my initial investment through dividends? This is the "duration" of the instrument.

If you buy JP Morgan's 5% perpetual preferred stock, it takes 20 years to get your principal back just through dividends. That's the credit risk you are taking. You don't need to worry too much about liquidity because it's perpetual. You are looking at how long it takes to earn your money back. The logic that perpetual instruments don't repay principal is entirely different from traditional debt, but both are math.

Coffeezilla: That's where our disagreement lies. I think calling it "digital credit" is misleading. Let's set that aside for a moment and talk about the actual credit risk of these things.

Let me be clear: I don't think you guys or MicroStrategy are going to collapse tomorrow. My view is that this is a snowball that will gradually grow bigger. Liabilities keep piling up, eventually leading to a slow-motion unraveling for you and MicroStrategy, leaving a lot of people trapped. Because the more successful this product is, the heavier the liability burden hanging over your heads becomes.

Jeff Walton: Then let's talk about the math. It's essentially a math problem.

Coffeezilla: But it gets really hard to talk about it that way. Because Michael Saylor will come out and say: "As long as Bitcoin goes up 2.5% a year, we can perpetually pay all dividends." He says this kind of thing often. But this calculation is based on the current STRC issuance. The more STRC is issued, the higher Bitcoin needs to go up, and this number needs to be recalculated. It's a dynamic number. You'd agree with that, right?

Jeff Walton: Not necessarily. If Bitcoin itself goes up, the balance sheet grows, and the relative proportion of liabilities is actually diluted. They have 818,000 Bitcoins on their books. When the Bitcoin price rises, the size of the balance sheet increases, and the leverage ratio actually decreases, not increases.

Coffeezilla: Right, the leverage ratio decreases. But the opposite happens when it falls. That's exactly my point.

Also, I think there's a flywheel effect here. You issue yield-generating products to raise capital, and then you use that capital to buy the asset that supposedly backs these products. The act of buying itself pushes the price of that asset up, making everything look more stable.

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

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

Jeff Walton: Cash is fungible. Where the incoming cash comes from can have various structural arrangements. The most fundamental difference between a Ponzi scheme and our type of capital management vehicle is this: Ponzi schemes have no reserves. We do.

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

Jeff Walton: Ponzi schemes have reserves too.

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 had some at the beginning, right?

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

I admit there's a key difference between you and a Ponzi scheme: Ponzi schemes usually involve fraud. If your risk disclosure is adequate and clients willingly accept the risk, that's their business. But what I'm saying is that this structure has a Ponzi-like vulnerability: unless Bitcoin goes up forever, it's unsustainable in the long run. And "Bitcoin goes up forever" is, in my opinion, a terrible bet.

Jeff Walton: So, 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 an insurance company pays out come from the premiums it collects. By your definition, isn't an insurance company also a Ponzi scheme?

Coffeezilla: No, it's different. An insurance company has real profits, real cash flow, generated from the assets it underwrites. A fair comparison would be this: An insurance company stops selling insurance and instead issues a "yield product based on something." You ask, based on what? It answers, "Based on our balance sheet." Where did the balance sheet come from? "From selling this yield product." That's what you guys are doing. A real insurance company sells a clearly defined product: I get insurance for my car; I pay a premium.

Jeff Walton: Isn't a preferred stock a product? It is a stock, a perpetual preferred stock. That is the product. Clients hold it for a reason.

Coffeezilla: Clients hold it because they think they will receive dividends. That's not the product. 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. Clients use it for store of 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 that 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. This is fundamentally wrong from the start. Strategy hasn't bought a single Bitcoin in the last 11 days. Yet, in those 11 days, the Bitcoin market has seen $350 billion in trading volume, equivalent to 4.4 million Bitcoins. Strategy hasn't been involved at all. This is a market with immense 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 coins a month to cover the dividends. The market traded 4.4 million coins in 11 days. 1,530 coins is no pressure on the market at all.

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

Coffeezilla: The thing people find weird is this whole process: You sell STRC to buy Bitcoin, and then sell Bitcoin to pay STRC interest. I don't want to use the P-word again, but it looks like you're taking a non-yield-bearing reserve asset, packaging it, and selling it as a yield-bearing product.

Jeff Walton: Yes, that is exactly what we are doing: converting it. We use a capital structure to slice the same asset into two products. Bitcoin goes on