The Chopping Block: Is Strategy the Luna for Suits?, ETH Labs Shakeup & CME vs Perps

**Haseeb Qureshi** (0:00)
The EF is giving money to ETH Labs. I think it's not the lion's share of their funding, but they are giving money to ETH Labs. Tarun, what's your take?

**Tarun Chitra** (0:06)
I think the announcement had committed one really big footpaw, which is that they ordered everyone's names graphically from their first name, not their last name.

**Haseeb Qureshi** (0:16)
That's what you fixated on? That's why we have you on the show, Tarun, for those deep insights.

**Tom Schmidt** (0:20)
Not a dividend.

**Tarun Chitra** (0:21)
It's a tale of two quants.

**Haseeb Qureshi** (0:22)
Now, your losses are on someone else's balance.

**Tom Schmidt** (0:25)
Generally speaking, AirDrops are kind of pointless anyways.

**Haseeb Qureshi** (0:28)
I named trading firms who are very involved.

**Tarun Chitra** (0:31)
I like that ETH is the ultimate model.

**Haseeb Qureshi** (0:33)
DeFi protocol is part of the antidote to this problem.
Hello, everybody. Welcome to The Chopping Block. Every couple of weeks, four of us get together and give the industry insider's perspective on the crypto topics of the day. So quick intro, first we got Tom, the DeFi maven and master of memes.

**Tom Schmidt** (0:46)
Hello, everyone.

**Haseeb Qureshi** (0:48)
Next we got Tarun, the Giga brain and Grand Poobah at Gauntlet. Yo.
Joining us today, we've got Laura, CEO of the show. Welcome back, Laura. It's been a minute.

**Laura Shin** (0:59)
Thanks for having me.

**Haseeb Qureshi** (1:01)
And I am Haseeb, the head hype man at Dragonfly. We are early stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see ChoppingBlock.xyz for more disclosures. Okay, so it's been another choppy week in the markets, and we were actually debating before we went live whether or not we wanted to open the show talking about Stretch. And Stretch one, we are going to talk about Stretch. So for those of you who don't know, Stretch is the preferred shares that Michael Saylor has issued that are basically near the top of the capital, or the pyramid, I should say, the capital pyramid of micro strategy, now just known as strategy. So Stretch is designed to trade at $100. And the idea is that it's preferred stock, and it issues a dividend that is basically, I think it was originally like 10.5% or something, and that was trading at $100 for quite a while. And he issued more and more of these as a way to finance his purchases of Bitcoin. And since the debacle that we talked about a few weeks ago, where he sold 32 Bitcoin and spooked the market, Stretch has started to weaken from this $100.
It's not a peg, but we can say like at a price target. So it's weakened from the $100 price target, went all the way down to 82 cents.
Now it seems to have stabilized around 86, 85
Stabilize is a strong word, of course it's not supposed to be sitting there. But implicitly what that means is that the market believes that they need more than the 10% yield in order to hold this thing. So at 85, that means something closer to like 14% or something like that yield that you're basically getting on holding this asset. And it kind of implies that now all of a sudden there is a risk perceived by the market that Saylor might blow up.
And presumably that's the reason why this thing would get priced down. If you believe that he was always good for the dividends, then everything should be okay. There's no reason why you wouldn't hold this thing at 100 because Saylor's good for it. But the fact that this asset has gone down, that stretch has gone down, means that Saylor now needs to do something in order to be able to pay these dividends. And the market doesn't believe that he can do it. One of the things that he could do, of course, is inflate the supply sell more shares of common stock and inflate the common stockholders of strategy. But right now, they do have, I believe they stated recently, they have 32 years of dividend coverage supposedly. Now I'm assuming that means by selling the Bitcoin, which is obviously not what they would actually do, they do have, I believe, 1.4 billion in cash as of June 22nd. So they do have quite a bit of cash sitting on the balance sheet. And every year, they have something like a billion five, roughly, of dividends that they're owed on the outstanding stretch. So they got basically one year chambered, assuming that they don't issue any more stretch. But it does mean that Saylor is going to have to find some way to cough up this cash, and that may be by further pushing down the strategy shares. So that's the high level. If you follow that, you're probably deep in micro strategy land. If you didn't follow that, high level is that in Tarun's words, this might be the Luna for Bitcoin.