Michael Saylor: 'We Tripped Over' the World's Most Efficient Tax-Deferred Income

**Michael Saylor** (0:05)
Thank you for allowing me to speak with you today. I'm gonna talk about merging TradFi and DeFi. I'm gonna talk about Bitcoin and crypto merging. I'm gonna talk about yield coins coming to stable coins. And this is my first time at Consensus, so I wanted to wait till I had something interesting to say, but I do today, so thank you for allowing me. First, I want to talk about digital credit.
Digital credit is based on digital capital, and so we wanted to create the best credit in the world. How do you create the best credit, the highest yielding credit? Well, you need the best performing asset. So you see Bitcoin's been outperforming the S&P and gold and NASDAQ for quite a while, and we started thinking, can we carve a credit instrument out of Bitcoin? Now, it turns out the volatility of all these assets is quite high. And so the impediment to spreading Bitcoin to the world is 40 vol is too much for most investors, and without the cash flows and with the vol, it's a difficult sell. Believe me, I know. I've spent thousands and thousands of hours doing this.
So what's the idea of digital credit? The idea is you use a capital gain to fund a credit dividend. We strip a certain amount of yield out of the capital gain. And so if you think you're getting 30 percent, you can extract 11 If you think you're getting 6 percent from real estate, you could pay a dividend of 3 And so as you can see, Bitcoin is the highest performing capital and so we can pay the highest dividend. What else do you need to create asset-backed credit? We need a lot of assets. And so you need a lot of equity capital. And the thing about Strategy, my company, is we've got about $68 billion worth of capital, and we've got an $85 billion enterprise. So when you have a tower of equity, the question becomes, how are you going to get yield on it? What are you going to do with all that capital? And what we realize is the killer app for Bitcoin is digital credit. That is, we don't borrow against it in a conventional way. We sell the credit into the TradFi, the traditional capital market, and we offer a yield. And for every dollar of capital, you can probably sell 20 cents of credit a year. So you want to create $20 billion of credit, you want to start with $80 or $100 billion of capital. The big advantage we had is we had a big equity capital market. We have $3 billion in trading in the equity market. We have a massive derivative market. Some people don't know, but MSTR trades more than iBit. Our open interest is more than iBit's open interest. So we've got the equity capital traders and the derivative traders supporting this security, and then we wanted to use this to create credit. What's credit? Well, we take a block of capital, we strip the currency risk, we strip the credit risk, we strip the duration risk, we damp the volatility, and then we distill a yield. So think of it as taking a barrel of crude oil, putting it through a reactor, and coming out with kerosene, right? Digital credit is like monetary fuel.
If you have a volatile capital asset, you know, it's a 30 or 40 vol, you've got this, you know, crazy roller coaster. What we're doing is we're extracting that first 11%.
And most people, they want to compound their wealth comfortably. They don't want to risk their principal. They just kind of want to compound their wealth progressively without a massive drawdown. So what happens if you actually process that signal and you create 11%?
Well, you have excess energy, excess volatility. Where does it go? It goes to the equity. And so when we, the very act of creating the credit actually creates a digital equity that is actually more volatile and higher performance than the capital asset. Hence, MSTR is amplified Bitcoin. STRC is Bitcoin credit. Does it work? I show you the theory. This is the actual result. This is 5.75 years of data. You can see since August of 2020, Bitcoin is up 40 percent, MSTR is up 60 percent. Notice where STRC is. That's your credit. So what we're doing is we're straddling both sides of a capital asset. There's a set of people that want leverage and performance in the rollercoaster, like strap on the rocket, pull the Gs. And there's another set of people that just want to live happily ever after, comfortably, and they'll give up the excess performance, and we're giving them both.