Strategy paying STRC dividends is not a legal obligation and will not be liquidated.

Author: Arkham; Translation: @金色财经xz

Will STRC be the next LUNA?

Simple answer — not exactly.

STRC has already de-pegged, dropping to $76.2, a discount of about 24% from its face value. Michael Saylor holds $1.4 billion to pay STRC dividends, but can he keep this preferred stock alive?

Here’s our detailed breakdown:

STRC is a perpetual preferred stock with a face value of $100 per share and a dividend rate of 11.5%.

There are 104.89 million shares of STRC outstanding. At an 11.5% dividend rate, Strategy needs to pay about $1.2 billion in dividends annually to sustain this preferred stock.

As of Monday, Strategy held $1.4 billion in U.S. dollar reserves.

The key point: Strategy is under no legal obligation to pay these dividends. Even if Strategy runs into trouble, Saylor is not obligated to prioritize STRC shareholders’ dividend payments.

Unlike Terra LUNA, Saylor faces no risk of being “liquidated” even if STRC’s price falls.

STRC’s price movement purely reflects the market’s assessment of the likelihood that Saylor can continue paying dividends.

If the market believes Strategy cannot raise funds and pay dividends, investors may sell STRC, but Saylor is not forced to spend money to prop up the stock price.

So why is STRC down now?

Investors are selling STRC, possibly because they think Saylor is unlikely to keep paying dividends in the future, or because they foresee difficulties in raising funds, or to chase returns from other stocks.

Will this destroy Strategy?

No. But in the long run, it could hurt it significantly. To keep STRC alive, Saylor needs to pay $1.2 billion in dividends every year.

If MSTR investors realize their funds are merely being used to repay earlier shareholders, they may reduce their purchases of MSTR in the future.