Transcription
Mr. Michael Sailor. [Applause] And what a year it's been.
Um, this is, this is a very pivotal year, I think, in the, in the formation of the digital assets industry. Uh, you know, they say the, the two most important days of your life are the day you're born and then the day you figure out why. And I think the extraordinary thing that's happened over the past 12 months is, I think a lot of us figured out why. Why are we in this industry? And I'm, uh, delighted to be with you today because I want to share, uh, my why. And my why is going to cover three pretty profound topics: the formation of a new asset class called digital capital, the formation of a new business model, the digital treasury business model, and the formation of a new asset class, digital credit. And I think 12 months ago, we, we knew that, uh, digital assets were auspicious, and we were all very bullish on Bitcoin. But I really think the past 12 months have provided extraordinary clarity about these three topics.
So, first, I'll talk about digital capital. Well, I think the emerging consensus in the world over the past 12 months is Bitcoin as digital capital. Uh, there were some pretty pivotal events. The red sweep was a pivotal event. Uh, the appointment of 12 pro-Bitcoin cabinet members was a pivotal event. Uh, when the president said, "We're going to be the superpower, the Bitcoin superpower," that was a critical event. When David Sachs said, "Bitcoin is digital gold, a digital commodity, the global commodity," uh, on Mar, it's March of 2025 when he went on television to assert that Bitcoin was special and recognized for its commodity status, that was a pivotal event. Uh, and we bandy about, you know, this, uh, this phrase, you know, "digital gold." And people talk about, is it just a store of value? Can it be successful if it's only a store of value? Well, there's a theme to that, which is the bug is the feature. And I think that the humbling epiphany of the past 12 months is every criticism and every bug in these asset classes, in this industry, in, in, uh, the treasury business model has turned out to be the feature. And here, store of value means capital. Gold is store of value. And if you are store of value, and if you are digital gold, and you emerge as digital capital, then that is a, a profound paradigm shift for the entire economic world.
So why is Bitcoin digital capital? Well, the politicians say it's digital capital. The banks have embraced it as digital capital. Now, we actually have, we have JP Morgan expressing support for the asset class. We have, uh, the head of Charles Schwab that's announced that they're going to custody Bitcoin. They're going to let you trade it. They're going to extend credit against it. Uh, they're going to let you deposit it and withdraw it in the first half of 2026. Uh, that's extraordinary. So, uh, what you see now is, I, 12 months ago, I couldn't get a loan against any kind of, uh, Bitcoin, uh, posted as collateral from any major bank in the United States. Right now, um, Bitcoin is creditworthy collateral at Merrill Lynch, at JP Morgan, at Charles Schwab, at Texas Capital Bank, at BNY Mellon, at Wells Fargo, and, uh, at PNC. And so there's probably a few that I've, I've, uh, skipped. I think City has just announced that they're going to start to custody and, uh, and bank Bitcoin the first half of next year. So we have, we have basically progressed through the unthinkable. We've gone from a, um, a toxic asset class that the administration was against and the banking industry did not acknowledge, to an emerging asset class that's getting the grudging respect of half of the major banks in the United States, and it's spreading like wildfire. And, you know, you, these are the most conservative, risk-adverse organizations in the world. And if they go and do a 180 in just 12 months, that's pretty extraord-, extraordinary. And if, if half of them embrace this asset within 36 months, I think that's light speed.
So you've seen the banks embracing Bitcoin. Now you're seeing Wall Street. Uh, of course, we all know the story of the success of IBIT, the most successful ETF in the history of Wall Street. Uh, I've tracked it pretty closely. What's interesting, of course, is it went from nothing to about a hundred billion dollars in less than two years. But also, if you look at the emergence of the derivatives market on top of IBIT, it went from nothing to $10 billion to $50 billion. Uh, and if you look at the liquidity, it, you know, it went from nothing to trading three, four to five billion dollars a day. Uh, it's really quite extraordinary. Um, public companies have embraced this asset. Uh, if it's going to be digital capital, someone's got to be willing to capitalize on it. There was one company that capitalized on it in the summer of 2020, and then there were two, and then there were three, and then we thought that was kind of cool. And then there were 20 and 30. There were maybe, uh, 30, 30 at the beginning, uh, the middle of '24, 60 toward the end of the year. And we've gone from 60 to more than 200 in the year 2025. Uh, 200 publicly listed companies up from, you know, 60 in 12 months is a, is quite a bit of progress in a single year.
So this is an extraordinary dynamic. And of course, the marketplace itself, right? What we see is 700 million crypto believers. Crypto, the crypto industry tipped the election last year. It's becoming the most powerful, if not the most powerful, political movement in the country. And it's a global phenomenon. And, uh, if you're going to be global digital capital, then you probably want to rest on, uh, liquidity. So you're staring at $60 billion a day of liquidity. But on Friday, I think we had a hundred billion dollars trading. So, it's an emerging, powerful asset. It's electrically powerful. It's computationally powerful. It's economically powerful. And it's politically powerful. And it's never been more powerful.
So, that observation, Bitcoin is digital capital, is key. We are capitalists. The capital assets of the 20th century: equity capital, real estate capital, uh, credit-based capital. Um, most of the world thinks private equity, public equity, and real estate is primary capital. The emergence of digital capital is pretty profound because it represents an alternative to people who, who, uh, don't perhaps want to store all their wealth in real estate. There's, as I've said before, there's really no real estate in Africa you probably want to put your family savings into for the next hundred years. Uh, there, there are lots of parts of the world where people just don't want to, um, to store their economic energy for long periods of time. So the emergence of digital capital is a global phenomenon. It's also a political phenomenon. It's also a technical phenomenon. And of course, if you pair the emergence of digital capital with the emergence of digital intelligence, you can imagine that in a world with a billion AIs talking to a billion AIs a billion times a minute, they're not going to have a, a lot of patience for 20th-century ways of doing things. They're not going to buy sports teams. They're not going to buy fiat sovereign debt capital. They're not going to store their money in cash. They're not going to trade gold. They're not going to want to store their capital in buildings or cross-trade commercial real estate. They're certainly not going to be comfortable with securities and all of the, all of the human and legal and political restrictions that come with them. So, the emergence of digital capital at the same time as we have an emergence of digital intelligence is, uh, maybe it's a coincidence, but maybe it isn't a coincidence. Maybe it's an inevitability.
So the second, uh, point I want to focus on is the emergence of the, of the treasury model, of a digital treasury model. What is it? A, a treasury company is a company that sells securities to buy a commodity that it then capitalizes on and then issues credit against the commodity. So if you cap-, if you sell securities, raise capital, and then issue credit against the capital, you've created a treasury company. Um, there traditionally haven't been a lot of treasury companies because the SEC 40 Act prohibited publicly traded companies in the United States from capitalizing on securities portfolios. Everything that I'm going to describe, you could do with the S&P index or a portfolio of Magnificent Seven stocks, except for the fact that regulations in 1940 put in place by the United States make it illegal. And so because you could never have more than 40% of your liquid assets sitting in securities, you find, uh, Warren Buffett's got to continually trim his position in Apple stock. He's got to sell his securities. He's always got to keep 60% or more of his liquid assets in treasury bills. And it turns out that most of these mathematical methods don't make any sense if you're using, uh, sovereign debt as your capital asset for economic reasons.
So we inadvertently discovered a new business model. There's insurance companies, there's banks, there's all sorts of business models. This is a treasury business model. And how does it work? We sell equity, we sell credit, we sweep cash flows, we buy Bitcoin. We've done it 85 times. Uh, and, uh, we found ourselves with about 3.1% of all the Bitcoin in the world. We spent $48 billion to buy it. Uh, it changes value every day, plus or minus a few billion dollars. Doesn't bother me. It bothers other people. I, I rather like it. I enjoy it. Um, we've gone from an irrelevant company to the fifth largest treasury in the S&P index. You can see the chart. We'll be the number two in the next 12 to 24 months. I expect we'll be the number one in 4 to 8 years. There's only one company on this chart other than ours that has a practice of accumulating capital, and that's Berkshire Hathaway. Every other company on this chart has a practice of surrendering capital. And so one of the big ideas in the treasury model is instead of surrendering capital enthusiastically as fast as you can and bragging about it, you might want to keep the capital. Every big bank, every time they have a good quarter, they increase their dividend, increase their buyback as though that's an accomplishment. Every big tech company increases their dividend, increases their buyback as though it's an accomplishment. It's not an accomplishment to surrender your money, right? If you walked into your dining room on Thanksgiving and told your family that your idea to improve the family was, you're going to give away all the family's money. That way, we won't have a volatile balance sheet. It's not good for the family, right? I, I think intuitively you know that it's not a good idea for you to give away your money, and you know it's a good idea for your family to give away your money. But somehow, somewhere along the line, the conventional wisdom in corporate finance is that money is toxic, capital is bad, and, and the most shareholder-friendly thing you can do is decapitalize the company by throwing all the money out.
Now, of course, the irony is the best-run companies in the world are in the business of getting rid of money, and that leaves the investors to figure out what to do with the money that's being surrendered by the well-run companies. And there, there's a certain irony to it all. Uh, it comes about because they're all capitalized on the wrong asset. You can see here, uh, in the last five years, the cost of capital is 14%. It's the S&P index. Turns out the gold is tracking it. You have, you know, you have two interesting capital assets: metallic capital, gold, equity capital, the S&P index, 14%. That's your hurdle rate. Money markets pay you 3%. Therefore, you're destroying 11% of your, uh, treasury assets every year that you hold money markets. Bonds are minus 4%. That's how you bankrupt your bank. The MAG 7's double that number. Bitcoin's double that number. Our company outperformed Bitcoin in the time frame. If your company is capitalized on an asset which underperforms the S&P, then you're negatively polarized to capital. You are, you are, it's toxic to you. So, you're going to throw it away as the rational thing. If you're capitalized on a, a product like Bitcoin that outperforms the S&P, you're positively polarized to capital. You attract money. In fact, the more money you raise, the more profitable you become, the more shareholder value you create. It's a very simple idea. Flip the polarity from negative to positive, and then you just get stronger every single year, and you'll get more powerful.
But as you can see, right, the reason that you can't capitalize on the MAG 7 is the SEC 40 Act. And you can't capitalize on the S&P index because of the SEC 40 Act. I guess in theory, you could capitalize on gold. Interestingly enough, no public company has really done that. And the point that I make to the gold bugs is even the gold miners don't do that. And if the gold miners aren't doing that, then there must be an issue. I don't know what the issue is. But what I do think is the general, the general tendency of corporations is you throw away your money to the investors, and the investors buy the index, and that's how they keep their economic wealth intact. And that's good for the investor, right? That's, look, that's why Harvard endowment and Yale, Yale and Harvard and all of these, uh, large institutions, that's why they have a 500-year life expectancy. They just buy a capital asset like real estate or equity. And the reason that your favorite company lives for five or 10 or 15 years and goes bankrupt is because they don't have any assets. Right? It's like, again, I've said before, they're like Type 1 diabetics. Right? They can't store energy. Bitcoin is insulin. It's insulin to the Type 1 diabetic. Right? If you're a company, you need Bitcoin. It's like your insulin. All of a sudden, you can store economic energy. You're, you're not doomed to decapitalize yourself.
Our company's raised a lot of money. We raised, uh, you know, a ton of money via equity issuance, a lot of money by bonds. And, and in the last 12 months, we've really rotated to raising capital via preferred stocks and preferred credit instruments. And, and, uh, that has taken off. Now, um, what is the treasury business model? What we're, we're, um, really financial engineers, right? Uh, we engage in financial structuring, or, or structuring of, uh, we're a structured finance company, if you will. And what you can see here is the raw asset is Bitcoin. It's got a 51% ARR and a 43 V over the past 30 days. If what you wanted was that, you could just buy it. But what we've done is we've stripped the volatility and the risk off of the asset. So we strip a bunch off with strike, uh, down to 29, then 18, then 15. And stretch, we stripped it down to 8% in the last 12 weeks. Stretch today, it's targeted at 100. It traded between 96 cents and 107, and 107 cents. But it's down to trading plus or minus 4 cents or 5 cents. Uh, if that trend continues, the ball on on Stretch will go to one or two. And so what we're really doing is stripping the volatility off of the pure economic asset. Where does the, there's conservation of energy in the universe. Where does the volatility go? It goes to the equity. If I actually convert 50% a year performance into 11% performance, where's the extra performance go? Goes to the equity. So what we're doing is fairly elementary. We're just stripping the performance and stripping the volatility and stripping the risk. And the extra risk, the extra performance, the extra volatility goes to the equity. And that, that's why a business that has $70 billion in digital capital can create $3 billion of very, very low volatility credit. Um, it's not that different, again, to take a barrel of crude oil and you ex-, you know, you take crude oil, you, if you distill it to the highest, most distilled form, you have kerosene. Kerosene is jet fuel. Kerosene is rocket fuel.
Now, I'm going to make a joke. If you study the history of science, it's full of examples of people that saw breakthrough technology. Um, but they used the technology the wrong way because they were conventional thinkers. Um, the, the idiom is repaving cow paths. It's like you invent concrete, and you could create a six-lane superhighway, and the car could go 90 miles an hour. But instead, I take the concrete and then I put it over a cow path that was meant for a cow that moves 4 miles an hour. And now I've got a paved cow path where cows can now move 4 and a half miles an hour. You got, you got no benefit from the technology because you used it the wrong way. Now I'm going to give you an example here. We invent, John D. Rockefeller, you know, distills kerosene, and you're in the horse and buggy business. So what do you do? Well, you create a kerosene lamp and you put a kerosene lamp in the back of the horse and buggy so that your customers can travel across the country by horse and buggy with a kerosene lamp and read a book. Or you put a kerosene heater in the back of the horse and buggy, and you brag that now you've got a warmed horse and buggy and you won't be cold while you're in the horse and buggy. But a dude like Ford comes along and thinks, "Well, maybe we'll just create an automobile and we'll drive with gasoline." Or maybe Boeing comes along, creates an airplane, and we just fly across the country. So, there's a compelling thing to do with the kerosene like rockets and jets and there's gasoline and there's cars, but there's also the trivial application of the technology which just makes the horse and buggy 1% better. And yet, you'll have that, the, the greatest business people of the era made all their money with horse and buggies, and they're going to grab the kerosene, put a kerosene lamp in the back of the buggy, and they're going to declare that they've used the technology for the good of their shareholders. And, uh, what I would say here is you just have to think different, and you have to think much bigger with regard to what you can accomplish here with this technique.
What we do is we accrete, uh, Bitcoin per share, right? So, our equity investors want more Bitcoin per share. We started with 56,000 Satoshis a share, and we added every single year. We added about 74% more last year and 26% more this year. Uh, there's a lot of ways to do it. You can sell equity, you can sell bonds, you can sell preferred stocks, you can, uh, you can sweep cash flows. This is a, a snapshot of the company's balance sheet. In essence, we're 1.1 levered. We're 1.3 times amplified, and we have 84 years of dividend. Um, you know, when Lehman got in trouble, they were 30x levered, and then they went to 50x lever. At one point, they had $15 billion of equity and $750 billion of assets. Right? So, I, you know, I get preached to a lot by finance bros that want to tell me, "Don't get too levered." But what I want to point out is we're not even 2x levered. We're, you know, and literally the leverage is going to one, that debt is going to go away. So the interesting thing, uh, to do here, of course, is to use credit that is equity to amplify your performance because you can, if you do that, you can do it without credit risk. It's very interesting. Um, our future is in credit issuance, right? What I said, you know, the day you were born and the day you figure out why, why are we here? We're here to sell digital credit. And, and the product is the credit. And so, we just got a credit rating from the S&P. We're the first, uh, digital treasury company to get a credit rating. It's pretty much the worst credit rating you could justify. We're starting at the bottom and we're crawling up. And it's predicated upon the Basel Accord, which suggests that Bitcoin is worth zero. It's zero capital. So you have a banking establishment that values Bitcoin as zero. But you have the marketplace that thinks it's worth $70 billion. Over time, we will rectify that, just like with, uh, with accounting standards, we were able to rectify that. And as that, uh, gets improved, then our credit ratings will move up. But the significance of a B credit rating is that instead of having access to $2.8 trillion worth of capital, you now have access to another $4.9 trillion. So we 3x the addressable market for credit instruments that we're selling. And the most important thing is to, is to allow fixed income investors and insurance companies to allocate to that part of their portfolio. So we thought that was auspicious. Our ambition is just to continue and improve the credit rating until we're an investment grade issuer of credit.
And that takes me to the product, right? The product is digital credit, right? Did it exist a year ago? No, we invented it. Necessity is the mother of invention. Um, why did we invent digital credit? Because traditional bonds are too risky. We tried traditional bonds. We tried asset-backed borrowing. Uh, we found, we found that either the bond market wasn't large enough or, or wasn't stable enough. And pairing, uh, traditional short-duration credit instruments like bonds with an asset like Bitcoin, which is highly volatile, creates a very dangerous situation where you might get forced liquidated, or you might, uh, you might get yourself into a credit crisis. That's not good for the equity. And so over time, right, this is the conundrum that every financer has, right? How do you go bankrupt? Uh, you lend long, you borrow short, right? A bank has overnight deposits and puts out 30-year money, and then people want their deposits back, and you can't call the loans, and so you get a run on the bank. You know, when Lehman went out of business, they were borrowing $700 billion for 15 days, and then they were invested in mortgage-backed securities and real estate for with a 5, 10, 20-year duration. So, obviously, you don't want to mismatch your durations. If your goal is to buy an asset, what is Bitcoin? Bitcoin is a 10-year duration asset. If you're going to buy it, your normal time frame would be 10 years, 120 months. So, what you want is a duration on your liabilities that is comparable to that duration of Bitcoin. So, how do you get to 10-year duration money? Um, you can't deal with 5-year loans. So, we started thinking that what we'd like is to get 10 to 20-year duration. And the way to get that is with, uh, preferred equity. And, um, so we, so we went to the market and we thought we're going to sell preferred equity, and we found, um, that, uh, the market wants a higher dividend yield for preferred equity than for bonds. And our first reaction was, "Oh, that's bad. That's a bug." And then our, and then after a while, we realized that's actually a feature. If we're paying 200 basis points more than we thought we should pay, then our credit just became the highest yielding credit in the world. And when you flip it from a bug to a feature, then you start to see something different, which is the credit that we issued from 2020 to 2024 was tactical credit in order to, in order to amplify the equity. We were trying to, the product was the equity, and the credit was, uh, the, was the tactic. And what happened in the last 12 months is an inversion of the business model where we realize that the credit is the product, and the equity is the afterthought. The, the equity follows from the credit, and the real product is, what if I gave 10% dividend yield to a billion people tax-deferred and stripped the risk off it? Well, that's a product. That's a product that would appeal to everybody. But maybe more interesting, maybe that might be the best product in the world. Say that again. That might be the best product in the world. If you can give someone 600 to 800% of of, uh, additional yield over the risk-free rate in a non-volatile instrument in the currency of their choice, you've created maybe the perfect product because that's what everybody wants. And, uh, we tripped over that. And, um, we started by doing a convertible preferred strike. We overcollateralized it. The effective yield was nine, but we realized that it was going to be tax-deferred. So the actual adjusted yield goes to 19.7%. Which is just off the charts. And then we did, uh, we did another one, Stride. But, and here I'm describing Stride. Stride's the junior credit instrument. The effective yield's 13%, but it's a rock dividend, which means you have tax deferral to it. So the actual effective tax-equivalent yield is 21%. Okay. It's the, it's the crappiest thing in the credit stack. It's the lowest grade one. It's 4.2 times overcollateralized. There's not an investment grade company that you can find that's four times overcollateralized in the conventional traditional credit market. So we actually have something which w-, which is thought to be junk bond or distressed debt, but it's actually investment grade risk, right, once you start to study it. And that's, uh, again, a profound insight and a breakthrough. And so depending on how you look at it, it's anywhere from two to three times better.
Then we created the senior instrument, which is seven times overcollateralized. It kind of sets the cost of capital, and that's 9% effective yield and about a 14% tax-equivalent yield. And then we, then we ran into a brick wall because we wanted to do some, uh, credit issuance in Japan and Europe, and we were running into some impedance. And so I thought, what can we do in the US? And we started thinking, and we realized that what, what we hadn't done is a monthly short-duration money market instrument. And so a lot of people complain. And they're like, "Well, we want monthly dividends, and we don't want volatility, and we want no principal, uh, no, no principal variation." So, we started thinking, how can we do this? And we used AI. We designed this product, Stretch. We took it public in July. It's the biggest IPO of the year. By the way, we've done five IPOs this year. Five, right? I don't think anybody's ever done five IPOs. I, you know, the joke that I, I made is, is I came up with one billion-dollar idea in my life, and then I spent 20 years trying to find the second billion-dollar idea, and I couldn't find it. And then from the point we found Bitcoin, we found the second, the third, the fourth, the fifth, the sixth, and we started finding billion-dollar ideas every eight weeks. And that's, that's what happened when you combine digital capital with digital intelligence in the right world. So this one came along in July, high. And, uh, it, the idea is basically, you set the dividend every month and you try to stabilize the principal at 100. And, um, it was well-received. Uh, and then the, the deal we did last week is we launched, um, a version of Stride. We launched a perpetual 10% yielding instrument in euros in Europe. And it was about $700 million US, about $620 million. And it, right now, it, it has an effective yield of 12.2%, but a tax-equivalent yield just south of 20% if you're a 37% taxpayer, if you live in Florida.
Um, this is how Stretch has seasoned over the last 12 weeks. So what you can see is it, it started at 90. We jacked the dividend, and then we took it up 25 basis points twice. And then over the past eight days, it locked in. Today it traded plus or minus 5 cents. And it, today, if you look at your quote, it closed at $100 and 0, and it was traded with one-penny spreads. Um, and, um, you know, what, what we told the market is, we're not going to sell it below 100. So, pro-, if someone wants to offer it to you below 100, you should probably buy it because we're going to get it to 100. And then we're not going to let it drift up above 100 either. So this is our most aggressive piece of financial engineering because what you see represented in Stretch is us saying, we're going to strip 120 months of duration down to one month. We're going to strip 50 V down to one, if we can get there. We're about eight now, but probably we're five or three in the next week or so. We're going to strip that to one. We're going to convert the basis currency from BTC to USD and take away the currency risk. We're going to take out the delta, and we're going to overcollateralize it five or six to one, which is the same as stripping away about 98% of the risk from the instrument. And then we're going to, and we're going to hand that to you as a high-yield bank account. And then we're going to take it public, give you a four-letter ticker, and let you trade in and out of it in the market, right? And, and, uh, if there's a kerosene for Bitcoin, this is the kerosene. This is the jet fuel.
Um, this shows a picture of our, of our digital credit stack over the past, uh, 12 months. You can see when I spoke here a year ago, none of this existed, right? What, what caused this to exist? U-, necessity is the mother of invention. Opportunity in the form of capital and intelligence, not mine, AI, digital intelligence. I talk, I argue with the AI and I fight with it, and, and we learn very, very quickly. And I can get answers that would take, uh, 37 accountants and lawyers a month, and I get the answer in 10 minutes. And so I can iterate something like a hundred times faster with AI. So the liquidity in these things has gone from 70 million to 180 million in a few weeks. And let me, uh, let me try to illustrate this a different way. The preferred stock market has normally been a garbage market. Most of these securities are garbage. They go into a portfolio, and people wait to die. They're sold via 144A transactions, which means that it's illegal for the public to buy them unless you're a qualified investor. When they're sold that way, they trade $100,000 a day with a, a bid-ask spread that might be 300 basis points wide. If you take one public, they trade a million a day. The first set of digital credit instruments we created traded 20 million, 20x that. And then when we finally got it right with Stretch, it trades 100x that. And this is 12 weeks old. So our goal here is to get this to a billion a day. And it's a chicken-and-egg thing. Like, why would I want to trade it? Well, you know, if it's a, if it's a heterogeneous, low-yielding instrument, there's no reason to buy it. There's no reason to trade it. Um, because these are perpetual, they're going to last forever. That meant that we could put a shelf registration on them, and we could, and we could grow the AUM in the same way that you might grow a proprietary credit ETF. And, uh, that was always our vision for this.
Now, we discovered that putting Bitcoin together with preferred stock, together with an IPO, together with a shelf registration was an innovation. But then we tripped over this next point, which is we discovered that all the dividends that we pay out are tax-free for you, right? Tax-deferred, technically. Basically, um, the bug, the bug was, "Oh, you're funding the dividends by selling equity, and you don't have cash flows to fund the dividends." Well, the fact that we fund the dividends with equity means that it's return of capital, which means that all the dividends become tax-deferred, and that means that you don't pay New York City tax, you don't pay New York State tax, you don't pay federal tax. Uh, you just get the dividend, and the basis in the instrument is reduced. And so a rock dividend is 0% effective tax rate until your basis goes to zero. Then it becomes like a qualified dividend, which is a long-term capital gains tax. And what it isn't is interest income, which is what every bond would be, and every money market, or every bank credit instrument would be. Um, we thought about it, and then we, you know, first we thought, "Well, is this true for all the instruments?" And then we said, "Why is it true?" And then it's true because we don't generate substantial earnings and profit (E&P). And then we thought, "Well, will it continue to be true?" And then we thought, "Well, yeah, the credit's the product. This is going to be true forever." And so the business model is an interesting one. Uh, it basically is a triple tax-deferred business model once you understand it. And, um, so you sell the credit, the credit creates the amplification on the equity, and that's what actually creates the equity value. The more credit you sell, the more Bitcoin per share you, you create, and that's how you outperform Bitcoin. And the trick is, people have known you could do this, but the trick is to do it without credit risk. So, you know, if, if I go and I borrow money for 12 months, then I've got a massive credit risk. Five-year money is a credit risk. But if you borrow the money with the intention to never pay it back, there's no credit risk. How do you borrow money with the intention to never pay it back? You sell preferred equity.
So, so I would love to tell you that I just sat down and, and, you know, and we invented this digital credit, but the truth is, we stumbled upon it because we kept running into headaches that we, or problems we wanted to solve. And we started, we created digital credit because we started with digital capital. We started using Bitcoin as the collateral asset. And so most credit is based on a depreciating asset, and Bitcoin is an appreciating asset. So if you build on top of an asset appreciating 10, 20, 30% a year, the credit risk is falling exponentially. That's the first breakthrough. The second breakthrough is it's transparent, homogeneous risk. When you have a credit instrument based on 87,000 home loans, you've got heterogeneous risk. You've got discrete risk. You know, you might have, uh, hurricane risk. You might have fire risk. You might have political risk. Corporate credit, sovereign credit, bank credit, they all have opaque, heterogeneous, discrete risk. But on the other end, Bitcoin's transparent, homogeneous, continuous. On our website, we update the credit model every 15 seconds, right? You can literally go plug in the price of Bitcoin, your volatility forecast, your performance forecast, anything, and you can get the credit model to spit out in seconds. And that's, that's a breakthrough. You cannot do that with mortgage-backed securities. You can't do it with junk bond portfolios. You can't do it with any kind of commercial real estate portfolio. The third big innovation is digital credit. Uh, or sorry, in this particular case, it's, it's digital credit is based on equity, not based on debt. Right? Bank credit is, bank deposits are liabilities. Uh, the bank has to give back the money. And they're the worst type of liabilities because they're overnight liabilities. You have to give back the money on demand tomorrow or today. Whereas debt is a liability that you've got to give back. You've got to get back the money in one, two, three, four, five years. The normal duration of corporate debt is like four years. So, it's four-year money. But preferred equity isn't a liability at all on the balance sheet. It's an asset. It's an equity instrument. It doesn't create, it doesn't amplify the risk. It mitigates the risk. So, if you've raised $10 billion of preferred equity, you're never giving it back. There's no $10 billion principal refinance risk. You've got a dividend, but the dividend is a shock absorber because, because literally the definition of preferred equity is the company's board of directors can't approve the dividend if it would put the company in peril. And so when you're actually funding with preferred equity, you're putting an asset on the balance sheet, a mezzanine equity asset. It mitigates the risk. And if you, and then of course, not all preferred equity is equal. You could have a refinance or a put obligation embedded in the preferred equity, which would make it shorter duration. But if you make it perpetual preferred equity, then the capital is permanent. And if it's permanent, that means you're not going to have any credit default event. Not in five years, not in 50 years. And, um, those are all reasons why you might want to do that. But of course, the next thing to do is take it public. And so most, most credit, if you think about private credit, it's illiquid. It's unbranded. It's local. It's difficult to access. But public credit, liquid, it's liquid. It's STRC. It's Stretch. It's got a name. It's Stride. ST-, STRD. It's got a name. It's global. It's branded. You advertise it. Friends tell their friends about it. People go tell their mothers, their fathers, their sisters, their workout partners, "You should buy some of this." It's easy to access. There are four credit instruments you can buy on Robinhood. They're STRF, STRC, STRD, STRK. They're credit instruments. So, this idea that you want to actually take it public is a big idea. Now, how do we learn that? Well, we learned it by watching our own convertible bonds not trade in the market. We had equity trading four billion a day, and we had convertible bonds not trading for three days, and it occurred to us that there's something not right about that market, and we wanted to fix it. And the way you fix it is you take the things public. And, um, then the other point that I make is digital credit is better because if you buy $100 million of digital credit, we can sell it to you in 30 seconds, and we can create it. We create the backend collateral for the credit in real time. So if we get a billion dollars of credit orders, we create the billion dollars of collateral and we stay synchronized. You can't create a billion dollars worth of home mortgages overnight. You can't create a billion dollars worth of commercial loans overnight. So you cannot create conventional credit and synchronize it in the same way that you can create digital credit. That's why, you know, banks have, you know, 50-story buildings and 27,000 employees. We can create billions of dollars of credit with six people. We can, it can be a billion, it could be 10 billion, it could be 100 billion, it can be a trillion, still the same six people. It's extremely efficient, instant, automated. And when you put all that together with the last observation, which is it's tax-deferred income. This is how you go from a 2 or 3% yield to a 20% yield. Right? Those are the innovations that make digital credit. And here, you know, the fortunate happenstance is we just discovered the Bitcoin treasury model. The treasury model is just triple tax-deferred. We raise billions of dollars of capital by issuing securities that's tax-deferred. We, we generate billions or tens of billions of dollars of income through appreciation of the asset, tax-deferred. And then we can pay billions of dollars of dividends as return of capital, tax-deferred, rinse and repeat. I would say that we have inadvertently created the most, the most scalable, tax-efficient fixed income generator in the world. The digital treasury model is the most tax-efficient generator of fixed income. If your goal is to generate large amounts of after-tax or tax-deferred fixed income for, and by the way, who would want that? Like everybody. If that's your goal, then this is the way to do it. Um, there, there's no other company's going to tell you they could generate a hundred billion dollars of dividends tax-deferred as rock dividends. They can't do it. If you look at the entire structure, uh, return of capital dividends, um, they, they've been utilized, but normally by pipeline companies and real estate companies and oil and gas companies, and they're basically using depreciation credits in order to get to negative E&P. And you cannot, maybe you can pay 3% dividends, and maybe you can pay 3% against a very fixed amount of physical capital, but there's no way to grow to pay 10% dividends and to grow the business 20, 30, 50% a year because the physical capital won't support it. The depreciation won't support it. So to do what we're doing at the scale we're doing and grow the way we're doing it has to be digital.
So what is it we are? We're basically a digital credit factory. The way to think of it is, credit investors want US dollar yield, and then equity investors want BTC yield. So, we're doing a perpetual swap. We're swapping. I'm going to give you 10% US dollar yield forever, and I'm going to take back the Bitcoin, which is an X% BTC yield forever. And since the equity investors want the Bitcoin per share, and then the credit investors want the yield, everybody gets what they want. Uh, and because we do it with preferred equity, we do it without credit risk. And so, if you've studied the swaps market, you can see what's going on here. Now, we just started doing it in euros. So, obviously, half the world wants to use dollars, but there's a big market for euro yield. There's a big market for JPY yield. Um, and so you can apply this pretty much in any currency.
How important is it to pay rock dividends? Um, well, if I take a hundred bucks and I re-, and I pay 10% dividends on $100, and your tax rate's 50%, you have $164 after a decade. But you can see that when that tax rate goes to 37%, you're 14% up. When they become qualified dividend distributions, you've got 35% more money. And if you get rock dividends, you've got 64% more money. So it's pretty substantial to any retail investor or small business.
So what are the digital credit opportunities? Well, this is Stretch yield versus other credit instruments. And what you see here is that even if you don't pay taxes, um, Stretch is twice as good as most everything else. And if you're, if you're a taxpayer in Miami Beach, it would be four times better than your money market. And, uh, of course, if you, your bank's going to pay you 40 basis points, but I'm going to assume you're smart enough to move your capital into a money market and get paid 400 basis points. But ultimately, the best thing going is private credit, which is going to be that illiquid, opaque idea. And this is going to be much better than that. And this is again trading plus or minus a few cents right now.
Now, to make this a little bit more, uh, personal, I've actually calculated the tax-equivalent yield in New York City for you that live in New York City. It's, it's 21.8%. So, Stretch is a bank account that pays you nearly 22% tax-equivalent yield. If you're a New Yorker, it's about 21% in LA or San Francisco. If you live in Miami, it's 16%. But if you're saying or you're asking, "Why would I want digital credit?" I think the chart's illustrating why you're going to want digital credit. This is that story in Europe, right? Stream is a 12.2% effective yield. The money markets are 1.5%. A 10-year Euro credit instrument is 2.6. So, you're talking about 1,000 basis points more than the 10-year index in Europe. You could fund in euros by Stream and capture a 10% carry trade, right? Who's going to do that? Well, I, I think a lot of people are going to do that once here. You have to come to two conclusions. You have to decide Bitcoin's not going to zero tomorrow forever. Do you trust Bitcoin? And then you have to trust the company strategy, right? So if you trust the issuer and you trust Bitcoin, then this is like free money, right? And it's staring at you if you want the carry trade of carry trades. This is the tax-equivalent yield in the major cities in Europe, you know, 23% in Vienna, right? And, and, and I put the money market fund over there for reference, just so you see the status quo is the little green dot on the right side. And this is what the digital economy is going to bring to Europe over time.
Um, the summary of all this, right? I mean, the message is, digital credit's just superior. It's superior to corporate credit, conventional credit, mortgage-backed credit. The credit's a $300 trillion market. As, as people start to think, "Well, maybe I'd like to get double, triple, or quadruple," you're going to see 1, 2, 3, 4% of that market change. This is a snapshot of the risk-free rate in every currency in the world. And what you can see is the US dollar is the highest risk-free rate. But, you know, you float over here to Europe, you're 1.9, 1.8%, and Singapore, it's 1.4%, and Japan, you're 50 basis points. In Switzerland, you're minus 40 basis points or something like that. So what is the idea with digital credit? It's very simple. You sell a treasury credit instrument, you convert it into currency of choice, you strip the ball off of it, and you hand someone 600 basis points or 800 basis points more than the risk-free rate, right? What, what is the ideal product? The product that is felt to be useful.
by the people of the world. Okay. Well, what do people find to have value? Well, there's a word in the English language for something that everybody finds valuable. It's called money. That's the word, right?
If you actually generate 600 or 800 basis points of additional yield in the currency of choice, you have created the perfect product. What is the perfect product? It's the product that someone is deaf, dumb, blind, and a coma yet unborn would still find valuable. Right? I thought the iPhone was the perfect perfect product at a point, but I'm on the iPhone 17 Pro Max. There's 35 versions there. We're going to be the iPhone 137 by the time your grandchildren are born. But you put something like this in a portfolio, it's going to work for them whether they know it or not.
So, I'll just end with this, right? What are the what have we done? Well, we've created an equity and if you want enhanced exposure to digital capital and digital credit, you buy the equity. That's how you get the amplified roller coaster. And if you're the equity investor and you want you want that kind of amplification, you buy it. If you don't trust anybody, if you want no counterparty risk to a company or to or no currency risk, buy Bitcoin. Bitcoin is the index on the crypto economy. What does that mean? It's the index on the free market economy. If you want to buy the free market capital index, you just buy Bitcoin. It is the risk-free rate for a people person that believes in digital assets and the digital economy.
If you want to have your cake and eat it too, you buy something like Strike, a convertible preferred. It gives you a guaranteed dividend, some portion of upside, consistent income, and principal protection. If you want to maximize cash flow, you buy one of the high yield instruments like STD. You know, it's 13% tax deferred. Um, if you don't quite trust the company and you want to make sure that you've got some investor protection and some penalty if they try to skip a dividend, you buy the senior instrument like Strife or Stream. And if you if you simply want to strip all the volatility away and just get something much better than your bank or your money market, you would buy the Treasury Credit Instrument.
Now, um, if you're not sure what you want right now, I will tell you what you want. What you want is you want this treasury instrument that is basically a high yield bank account. You want to be paid 10.5% with the tax deferred for the next 10 years, right? When you change your mind, you sell it for the same price you bought it and you go do something that gets you something better. But um, you know, at the end of the day, I've got I know a lot of Bitcoin maxis, a lot of Bitcoin believers. A lot of there aren't very many of them that would say, "I'm going to actually put all the money I need to pay my kids tuition in the fall into Bitcoin." They all have treasuries. They all have near-term obligations. And if your choice is to get 30% ARR with more than 30 V or to get 10% tax deferred with no volatility, there's a lot of people that would put some portion of their money into that no volatility 10% guarantee. You know, it's pretty compelling, especially if you can borrow the money at four and you can get into the carry trade.
So, um, with that, I would thank you for your time and I would just say I I think if you're a finance here and you're an investor and you think really hard right now, what I've shared has implications for every company that has digital assets on its balance sheet. It has investors for all implications for equity investors. It has implications for credit investors. And the only thing I would say is it's worth thinking hard about. We say Bitcoin takes a 100 hours to understand. Uh that's a 15-second ad. It doesn't take even a 100 seconds to understand. Oh, a bank account that pays me 10% and I don't get taxed on it. Right? That's that's like, oh, too good to be true. What's the catch? But what you know, just like a lot of people don't want to play with fire or explosives, they all would like a car with an automatic transmission that's got fire and an ignition inside it that will take them here. So we are now on the verge of being able to create some wonderful financial instruments that will appeal not to the crypto maxis or the or the innovators or the tech investors. It's, you know, the mission is give a billion people 10% tax deferred, right, everywhere in the world. And it's kind of cool in the US, but if you live in Switzerland or or Japan and you're getting 50 basis points or less, there's the difference between nothing and 10% return on your capital. It's a it's a revolution in finance. And I think in the last 12 months, my eyes have been opened and I realize that our mission is to go and and digitally transform the entire credit marketplace, which means the banking industry and all of finance and we can do it everywhere in the world on a strong Bitcoinbased foundation. Thank you. [Applause]