Relying on Bitcoin to steadily earn high returns, how does this new product achieve that?

Article by: James Lavish, Hedge Fund Manager, Independent Director of Strive

Translation by: Luffy, Foresight News

Imagine there is a security that pays you 11.5% in cash yield every year and every month. Real cash is directly deposited into your account each month, while the stock price remains almost unchanged. The trend is dull, but the returns are very attractive. And the entire product is backed by Bitcoin.

Michael Saylor defines this kind of new asset as Digital Credit, and in a recent tweet, he likened it to a civil aircraft, with the underlying asset being STRC. Honestly, this is one of the most innovative yield-based financial instruments I have seen in recent years.

Strategy was the first to launch such a product, followed by Strive issuing a similar underlying asset, SATA. Now both major products are on the market, and Bitcoin investors are continuously pouring in.

But mainstream financial media either remain confused or dismiss it outright. The same asset receives two completely opposite evaluations: some regard it as a groundbreaking innovation, others see it as a scam bubble.

This high-yield product that arguably shouldn’t exist is now publicly listed, yet professional institutions have yet to definitively judge its quality.

Over the past few months, my inbox has been filled with reader questions, with the core doubts being similar: Is this kind of product reliable? Is it real income or a trap?

This Tuesday, I participated as an analyst in Strategy’s Q1 earnings call, where STRC became the focus of discussion. Coupled with my personal experience serving as a director at Strive and being involved throughout the SATA product design, I am writing this long article to thoroughly explain the underlying logic.

What is Digital Credit?

For clarity, this article mainly focuses on STRC. The product structure of SATA, under Strive, is almost identical. Later, I will compare the differences, but the main thread will revolve around STRC.

Digital Credit is essentially a perpetual preferred stock backed by Bitcoin reserves as the underlying collateral. It can be broken down into three core keywords: stock, preferred stock, and fixed income, plus an innovative underlying design. Let’s analyze each.

STRC is fundamentally a form of equity; holding STRC is equivalent to owning a portion of the issuer, Strategy. It can be freely traded on exchanges, following standard stock trading rules.

In the company’s capital structure, STRC ranks higher than common stock. The order of repayment priority from top to bottom is: senior debt → preferred stock → common stock, with residual value going to common shareholders. When the market is good, this priority difference isn’t obvious; during crises, it becomes critical.

In other words, STRC has a higher priority than MSTR common stock but lower than convertible bonds, on par with other preferred stocks. Its claim to assets is solid, offering strong protection, especially suitable for investors who are long-term believers in Bitcoin’s value.

This structure is a win-win for the issuer. During downturns, the company can suspend dividend payments; compared to issuing more common stock, preferred stock financing costs are lower and do not dilute existing common shareholders.

Preferred dividends are calculated based on a fixed percentage of face value, not on your purchase cost, similar to bonds.

STRC’s face value is $100, with a current dividend rate of 11.5%. Regardless of whether the secondary market price rises or falls, each share pays a fixed $11.50 annually in cash.

If you buy at par ($100), your annualized yield is exactly 11.5%. If you buy at a discount, say $90, you still receive $11.50 in dividends per year, making your effective annual yield 12.78%. Even better, if Strategy later redeems the security at $100 face value, you not only get stable dividends but also earn an additional $10 per share from the price difference.

This illustrates the difference between the face yield and the current yield. A major advantage of perpetual preferred stock is that patient buying in the discount zone can naturally boost actual returns. However, for STRC, this effect is less pronounced than most preferred stocks, which I will explain later.

Now, let’s discuss the new part—the Bitcoin reserve backing.

A year ago, all preferred stocks on the market were backed by traditional corporate assets: bank loan portfolios, REIT real estate properties, telecom operating cash flows. Dividends relied on core business profits.

Digital Credit, however, fundamentally changes the underlying collateral: it is backed by on-chain, auditable Bitcoin reserves as the value guarantee.

Strategy has previously issued other preferred stocks with different structures and purposes, but STRC’s positioning is unique: it is the only one designed as a perpetual preferred stock with a floating dividend rate. Its initial design goal was to keep the price close to face value and provide stable cash dividends. This special structure is truly a digital credit asset; other similar products do not belong to this category.

Comparison of similar assets: SATA briefly

Last year, Strive issued SATA, a product aligned with digital credit, with a structure almost identical to STRC, differing only in scale, liquidity, and yield.

Strive’s balance sheet is leaner, with almost no liabilities; SATA’s total circulation is $496 million; the company holds 15,000 Bitcoin (worth $1.2 billion) and $148 million in cash reserves. The cash reserves can cover about 2.3 years of dividend payments.

Due to its smaller scale, SATA’s liquidity is weaker; as a liquidity discount compensation, SATA offers a higher dividend rate, currently at an annualized 13%.

Many investors choose to allocate both STRC and SATA to diversify risk and further increase overall portfolio yield.

Later, the product design, target audience, and risk logic of STRC will be fully applicable to SATA, with only slight differences in scale, liquidity, and yield.

Now, let’s return to STRC.

By now, we have confirmed three things: STRC is a perpetual preferred stock; dividends are paid in cash, with a face value of $100 and a current dividend rate of 11.5%; and the entire structure is supported by Bitcoin reserves on the issuer’s balance sheet.

This raises the most critical question: How does Strategy sustain a stable monthly cash dividend of 11.5% over the long term?

Understanding the underlying design logic

To understand this product, imagine yourself on a commercial airplane.

Saylor compares STRC to a civil aircraft, implying straightforwardly: the biggest feature of civil aviation is stability. Passengers just sit down, read, drink coffee, and hardly feel turbulence. Behind this is the meticulous design by countless engineers and layered system safeguards, ensuring smoothness on the surface.

Similarly, products like STRC are designed to be extremely stable: the experience is smooth, and the underlying architecture supports this stability.

The entire design can be broken down into four core modules: fuel, autopilot, fuselage structure, and seat belts. After reading this part, you will be able to understand its profit and dividend logic on your own.

Fuel: the actual returns investors receive

Previously, we calculated the basic yield: face value $100, annualized 11.5%, with a yearly dividend of $11.50, paid monthly, about $0.96 per month per share.

According to Strategy’s Q1 2026 financial report, the nominal issuance scale of STRC is $8.54 billion. Based on an 11.5% dividend rate, the company needs to pay nearly $982 million annually, almost $1 billion flowing to holders each year.

This is the “fuel cost” to keep this “aircraft” running. The core question remains: where does the company get nearly $1 billion annually to sustain these dividends? Let’s look at the second design aspect to answer another question in your mind:

Since it’s just preferred stock, why does STRC’s price hardly fluctuate?

Autopilot: floating dividend mechanism, anchoring price close to face value

Ordinary preferred stocks behave like long-term bonds: fixed dividends, market rates rising cause prices to fall, rates falling cause prices to rise, leading to significant price volatility.

STRC’s design is entirely different. Its dividend rate is floating, and the board can adjust the rate monthly. The prospectus explicitly states the initial intention: to keep STRC’s trading price close to $100 face value.

The actual operation logic is: at listing in July 2025, the initial dividend rate was only 9.0%; by May 2026, it had been increased to 11.5%. During the first nine months, when the price was under pressure, the company gradually increased dividends, attracting market buying and pulling the price back near $100.

From the trend, it’s clear that STRC is like a smooth cruising civil aircraft: after a slight initial rise, it remains steady and stable; while MSTR common stock is like a rocket with wild swings. Both rely on the same Bitcoin asset, but their market behaviors are entirely different.

The underlying Bitcoin price remains volatile, but the product design does not eliminate fluctuations; it shifts volatility.

In MSTR common stock, volatility appears on the price chart: sharp rises, sharp falls, sideways consolidation for months, then sharp rises again. Your trading experience is volatility itself.

In STRC, the floating interest rate absorbs the same volatility and converts it into yield. The stock price remains stable around $100, while what truly fluctuates is the dividend rate. You receive cash dividends every month, while the stock price remains nearly unchanged.

Reinforcing the fuselage: what supports all this?

The safety of the aircraft depends on its fuselage structure, and the underlying support of digital credit is entirely different from traditional preferred stocks.

Traditional preferred stocks rely on cash flows from core businesses: bank loans, stable utility revenues, REIT rent income—profit from operations to pay dividends.

STRC’s logic is entirely different: Strategy is fundamentally a Bitcoin reserve enterprise. The latest disclosure shows holdings of 818,334 Bitcoin, valued at about $66 billion at current prices. This massive asset base is the solid fuselage supporting all capital structures, including STRC.

Returning to the core question: how can it sustain 11.5% dividends long-term? Strategy’s Q1 financial presentation provides two conservative assumptions based on Bitcoin’s long-term annualized return:

Optimistic equity estimate (growth logic similar to MSTR): Bitcoin’s annualized compound return of 30%;

Conservative credit stress test (risk estimate for STRC): only 10% annualized return.

Currently, the company’s total annual payout for preferred stocks and convertible bonds is $1.49B. With Bitcoin’s $66 billion valuation:

At a conservative 10% annual growth: annual asset increase of about $6.6 billion;

At an optimistic 30% annual growth: nearly $19.8 billion annual increase.

In either case, the asset appreciation far exceeds the fixed annual payout.

But wait, the 11.5% dividend rate of STRC is 1.5 percentage points higher than the conservative 10% annual return assumption. This is precisely why the company has an extra reserve of $2.25 billion in cash.

If Bitcoin experiences a multi-year deep correction and asset appreciation slows significantly, this cash reserve can support 18.1 months of full dividend payments without selling Bitcoin or issuing more common stock at unfavorable prices, smoothly riding out the downturn.

This structure is effective because of the layering of three parts:

A huge Bitcoin asset base far exceeding annual payouts ($66 billion);

A USD cash buffer of $2.25 billion to handle bear market dips;

Long-term Bitcoin appreciation returns that far surpass dividend costs.

Seat belt: the ultimate safety net in extreme conditions

Beyond fuel, autopilot, and fuselage, the fourth safeguard is embedded in the legal terms of the prospectus, like seat belts on an aircraft.

STRC is a cumulative preferred stock, which is crucial: if the company delays dividends, unpaid dividends do not reset to zero but accumulate interest; compounded monthly at the current rate until fully paid.

Moreover, the terms clearly state: before all accumulated unpaid dividends are fully paid, no dividends or profits can be distributed to MSTR common shareholders. This is a legal safety net for investors.

Many ask: will this safety mechanism ever be activated? The company holds $2.25 billion in cash reserves, and its assets far exceed annual liabilities, so it’s unlikely to ever need to. But the clause is written in black and white, prepared for extreme black-swan scenarios.

Tax logic supplement

STRC investors do not need to pay full taxes on dividends each year. Strategy classifies STRC dividends as a return of capital: dividends are not taxed as ordinary income in the year received but dilute your cost basis, deferring taxes.

For high-tax-rate investors, this deferred taxation significantly boosts actual returns. The only tax cost occurs when you sell: your cost basis is lowered, and capital gains tax applies on the profit; if held over a year, it qualifies for long-term capital gains tax rates.

A simple example (assuming price remains at face value $100):

Buy at $100;

Hold for two years, receiving $11.50 per year, totaling $23;

No taxes on dividends each year;

Sell at $100, paying capital gains tax only on the $23 profit.

This is very friendly for long-term holders and high-tax-rate investors.

With all this, the internal logic of the “civil aircraft” is fully unraveled: fuel is the real cash dividend of 11.5% monthly; autopilot is the floating dividend mechanism, converting price volatility into dividend volatility and anchoring stock price stability; fuselage is Strategy’s hundreds of billions in Bitcoin reserves; seat belt is the legal safety net of accumulated dividends and priority repayment. As long as Bitcoin’s long-term annualized return is close to the conservative 10% assumption, the entire yield logic can operate coherently.

Who is STRC suitable for?

After understanding the operation logic, the most critical question is: is this product suitable for you?

Any mature financial product has a precise target audience; it’s not suitable for everyone.

Target group 1: Income replacement investors

This is the largest and most fitting group. They have idle cash, recently liquidated assets, long-term holdings of money market funds and short-term US Treasuries; or retirees relying on cash flow income, watching traditional fixed income yields lag inflation and assets quietly shrink.

They seek steady asset appreciation, beating USD depreciation and real inflation. STRC is designed precisely for this purpose. The core goal of the entire architecture is to provide cash dividends far exceeding traditional fixed income, with the added advantage of price stability.

Target group 2: Bitcoin believers who cannot tolerate high volatility

Many have long-term bullish logic on Bitcoin, holding small amounts of spot Bitcoin or Bitcoin ETFs; but they cannot accept the violent swings of MSTR common stock or dare not allocate large retirement funds into Bitcoin spot, worrying about overnight volatility.

STRC offers a new choice: it follows Bitcoin reserve logic but without the extreme volatility of Bitcoin itself. Like flying on a smooth civil aircraft across the same Bitcoin market domain, without riding a rocket with wild swings. For many Bitcoin optimists who fear volatility, this is the first asset they can hold long-term with peace of mind and sleep well at night.

Target group 3: High-net-worth investors focused on tax optimization

If you are in a high federal tax bracket, the previously discussed capital return treatment can greatly improve your actual after-tax returns. For high-tax investors, STRC’s tax advantages are very significant compared to taxable fixed income products. Long-term holding can lead to much higher after-tax yields, and professional wealth managers will pay close attention to such assets.

Target group 4: Rational investors willing to deeply understand product logic

Those willing to carefully read the prospectus, understand the product terms; grasp the layered dividend accumulation, capital structure priority, perpetual nature, floating rate, and underlying Bitcoin reserve logic; and clearly see the advantages and safeguards of the entire architecture—these investors are not blindly chasing yields.

If you belong to this group and truly understand the product’s essence, STRC can be fully incorporated into your portfolio. Understanding before investing is the most important threshold in investing.

Who should avoid it:

1. Investors seeking high growth and explosive returns

If you expect Bitcoin bull markets to double assets, STRC is not suitable. Its design intentionally strips away the potential for rapid price increases in exchange for stability. The floating mechanism not only anchors the price during declines but also suppresses upside potential. If you want to chase Bitcoin’s growth dividends, MSTR common stock is the choice; STRC’s design is aimed at stability, not growth.

2. Investors seeking absolute zero risk

Frankly, no asset is truly risk-free, not even US Treasuries. STRC offers high yields but comes with corresponding risks. Strategy explicitly states: STRC is not a bank deposit, has no deposit insurance, and is not protected by money market or short-term bond regulations. It cannot be equated with principal-protected products.

It is suitable for high-yield, well-risk-managed assets that still carry risks; the structure is designed with risk controls but cannot eliminate all risks. If you want absolute principal protection and government-backed guarantees, only US Treasuries or money market funds are suitable.

3. Investors who cannot understand the underlying logic or blindly chase yields

If you cannot explain simply what STRC is and what supports its dividends, then it’s not suitable for now.

Digital Credit is a new asset class only a year old. If you don’t understand it, don’t rush to follow the trend. Re-read this article, consult official materials, or seek financial advice. Taking three months to digest before deciding is perfectly fine; the product will not disappear suddenly.

The worst approach is “buy first, learn later.” The correct order is always: understand first, then invest. If you can grasp the entire design logic here, you have the basic qualification to allocate; if it remains obscure, it’s better to learn more before acting.

Where are the potential risks?

Experienced investors always ask first: what are the risks? All yield assets involve risk in exchange for returns. A 3.7% yield on short-term debt corresponds to very low risk, while STRC’s 11.5% high yield must entail higher risks. Let’s objectively analyze the yield advantages and real risks.

Four core advantages

High yield: 11.5% annualized monthly, 4–7 percentage points higher than traditional preferred stocks;

Stable trend: implied volatility only about 6%, compared to nearly 59% for MSTR common stock—vastly different market experience;

Tax optimization: capital return defers taxes, significantly increasing after-tax returns compared to similar taxable fixed income products;

Capital structure protection: accumulated dividend mechanism, higher priority than common stock, and claim to Bitcoin assets upon liquidation, with clear legal safety net in the prospectus.

These are the four main reasons capital flows into this product, along with four objective risks.

Four real risks

Risk 1: Bitcoin could experience multi-year prolonged decline.

The company’s $2.25 billion cash reserve can cover 18.1 months of full dividend payments without touching Bitcoin assets; its Bitcoin holdings worth $66 billion at current prices can support 44 years of payouts.

Officially, in extreme scenarios, selling Bitcoin is also an option to ensure dividends, further strengthening the structure’s protection.

Risk 2: Long-term loss of financing channels in capital markets.

The digital credit flywheel relies on: timely issuance of preferred stock → fundraising to buy more Bitcoin → expanding assets → continuously supporting dividends.

If due to regulation, credit cycles, or industry reputation, refinancing becomes impossible long-term, the flywheel will slow down. Fortunately, current assets far exceed annual expenses, so the structure won’t break in the short term; but long-term, permanent loss of financing channels would alter the current yield assumptions. My personal judgment: low probability.

Risk 3: Delay or suspension of dividend accumulation.

In extreme market stress, the board can temporarily suspend STRC dividends; unpaid dividends will accumulate interest and must be paid before any dividends to common shareholders. This provides a legal safety net for investors.

Many ask: will this safety mechanism ever be triggered? The company’s $2.25 billion cash buffer and asset size far exceed liabilities, so it’s unlikely to be used. But the clause is in place, prepared for extreme black-swan events.

Risk 4: Changes in tax and regulatory policies.

Capital return classification is subject to annual reassessment; future permanence cannot be guaranteed. The overall regulatory framework for Bitcoin reserve companies is still evolving. Recent years have seen a more friendly stance, but future policy shifts or regulatory changes could introduce uncertainties.

Short-term probability is low, but it’s a potential risk that must be considered.

Summary: The four advantages are clear, and the four risks are quantifiable and explicitly disclosed by the issuer, with no hidden pitfalls.

Are you suitable to board this “Yield Aircraft”?

We have thoroughly dissected the product’s underlying architecture, target and risk groups, yield advantages, and potential risks. The final decision to invest is entirely up to you.

I won’t make your investment choices; I only clarify the product’s mechanism, weigh pros and cons, and point out risks. The rest depends on your own portfolio, consultation with financial advisors, and personal judgment.

I want to leave readers with a long-term perspective: Digital Credit is a brand-new asset class that didn’t exist a year ago. Currently, the market only has STRC and SATA. Over the next year or two, more institutions will launch similar products, with variations in structure, yield, and details.

At that time, you can simply apply today’s four core evaluation standards to quickly understand any similar new product:

What assets back the dividend? Are they transparent and public?

How is the dividend rate set? What mechanism anchors the price stability?

What is the repayment priority in the issuer’s capital structure?

In extreme market conditions, what legal and financial mechanisms provide safety?

This analytical framework is not only applicable to today’s STRC and SATA but also suitable for all future digital credit products.

The greatest value of thoroughly understanding a new product’s logic is not whether to buy it, but mastering a reusable evaluation framework to confidently face future similar assets.