STRC Dividends Become "Poison," 500 Million in DeFi Synthetic USD Trapped

By: Forbes

Compiled by: AididiaoJP, Foresight News

As Bitcoin continues to slump, Strategy, helmed by Michael Saylor, is doing everything to maintain investor confidence, but a chain reaction suddenly threatens two digital dollar products with a combined size of nearly $500 million.

Recently, no company has made crypto investors more uneasy than Strategy. As the publicly listed company holding the most Bitcoin globally, its balance sheet carries approximately $58.5 billion worth of Bitcoin.

In June, Bitcoin fell below $60,000, hitting a new low since October 2024. Strategy's common stock plummeted from a historical high closing price of $473.8 to a low of $82, with a current market cap of approximately $28.5 billion. The company's popular preferred stock, Stretch (ticker STRC), also fell to $74, trading at a $26 discount to its $100 par value. This preferred stock now pays an annual dividend of 12%, reaching junk bond levels. Combined with $6.7 billion in convertible bond interest, Strategy needs to pay approximately $1.76 billion annually in preferred dividends and interest.

Under pressure, Strategy had to abandon Saylor's long-held stance of "never selling coins." The company has authorized the sale of up to $1.25 billion worth of Bitcoin to replenish cash reserves and cover the aforementioned payments. From late May to early July, Strategy actually sold approximately $218.5 million worth of Bitcoin and raised nearly $1.85 billion through additional common stock issuance. Current cash reserves stand at $3.75 billion, sufficient to cover 2.1 years of current dividends. Saylor's personal net worth has also shrunk from over $9 billion at the beginning of 2025 to approximately $3.3 billion recently.

But Strategy's troubles extend beyond the various financial instruments it has issued to the public. Before the plunge, Stretch had become a favorite among many decentralized finance (DeFi) projects—which sought to convert this substantial dividend into on-chain yield products.

The two largest currently are Apyx and Saturn, managing nearly $490 million in assets combined: Apyx has gross reserves of $307 million, and Saturn has a Total Value Locked of $183 million. According to Zheng Jie Lim, an analyst at crypto data firm Artemis, as of July 21, approximately $267 million was directly exposed to Stretch—of which Apyx accounted for about $196 million and Saturn about $72 million. The rest consists mostly of cash, tokenized treasury bonds, and protocol-owned assets.

Apyx holds Stretch and cash in brokerage and custody accounts, issuing the synthetic dollar apxUSD backed by these reserves. Unlike traditional stablecoins such as Tether USDT and Circle USDC, which are backed by cash and treasury bonds and pegged to $1, apxUSD does not guarantee a constant value of $1; its redemption value fluctuates with the underlying asset portfolio. Yield-seeking investors can deposit apxUSD into Apyx in exchange for another token, apyUSD, thereby sharing in Stretch's semi-monthly dividend income.

During the sell-off in late June, apxUSD once fell below $0.80. By July 21, its secondary market price on exchanges such as Kraken and Curve rebounded to approximately $0.90. Excluding minted but unsold tokens and Apyx's own liquidity, Artemis estimates Apyx has about $233 million in reserves, corresponding to circulating token value of about $257 million, a coverage ratio of only 90.7%. In other words, investors who thought they were buying "quasi-dollars" are already facing a paper loss of about 10%. Stretch accounts for 84% of Apyx's reserves. Additionally, eligible investors wishing to redeem apyUSD through Apyx must wait approximately 20 days.

According to Token Terminal data, Apyx's operating entity is registered in the British Virgin Islands. Its main backer is DeFi Development Corporation—the first publicly traded crypto treasury company focused on accumulating Solana (Solana prices have nearly halved since early 2026). Like many digital asset treasury companies, its stock price has also plummeted from $42.50 last May to approximately $2.70 recently.

Saturn's model is slightly different. Its stablecoin USDat is backed by tokenized treasury bonds; investors seeking higher yields can exchange it for the interest-bearing version sUSDat, which is primarily backed by Saylor's Stretch preferred stock. As of July 21, Stretch accounted for about 94% of sUSDat's reserves, with each sUSDat worth approximately $0.90 USDat.

The protocol is promoting annualized yields of up to 27.5%, but only 12 percentage points of this come from Stretch dividends. The remainder relies on Stretch rebounding from its current approximately $87 to its $100 par value—a typical crypto optimistic assumption.

According to PitchBook, Saturn is headquartered in Philadelphia, incubated by YZi Labs, and has received investment from Spartan Group, Anchorage Digital, and others.

Both Apyx and Saturn restrict access by jurisdiction and prohibit U.S. users from participating. Eligible investors can purchase products through the company websites and trade related tokens on crypto markets such as Curve and Pendle.

Sid Powell, co-founder and CEO of crypto lending platform Maple Finance, stated that buyers (mostly retail investors and mature yield funds) still have reasons to continue holding and waiting. Early investors may prefer to continue collecting Strategy dividends rather than selling at a loss; new buyers are betting that Strategy's increased cash reserves will hopefully push Stretch back to $100. If interest rates continue to decline, the appeal of this bet will further increase: a 12% dividend (if it can truly be sustained) looks more attractive when other yields are falling.

These protocols well demonstrate how DeFi derives multiple speculations from a single bet (Stretch preferred stock). On the Morpho lending platform, investors can use Apyx and Saturn tokens as collateral to borrow other digital dollars, then buy more interest-bearing tokens, repeating the cycle. This is the so-called "looping"—the crypto version of "borrowing to add positions." It exponentially amplifies risk: once confidence in the underlying securities is lost, it could trigger a catastrophic collapse. Currently, Stretch and Strategy are deeply entrenched in trouble.

On the Pendle platform, these tokens can also be split into separate claims on principal and future yield. "This is exactly like splitting a bond into principal and coupon," explained Glenn Cameron, Global Head of Dallas-based Bitcoin custody and consulting firm Onramp Institutional. Some positions can also be reinvested into lending markets, allowing traders to borrow more dollars, buy more tokens, and continue the cycle.

Some paths even promote annualized yields as high as 40%, and the Saturn website also distributes reward points to participants. If these "amazing" yields and looping techniques sound like boiler room salesman tactics, you better proceed with caution. These investments are located offshore, and currently, no U.S. regulators are watching their products.

Leverage is equally efficient and cruel when running in reverse. Stretch falls, reserves depreciate, token prices follow downward, and loans become under-collateralized. Once a borrower's collateral value falls below the threshold required by Morpho, external liquidators (usually automated bots) can repay the debt and seize the collateral at a discount. If they then sell off in a market already full of nervous sellers, it will further depress prices, triggering a new round of liquidations. "Because they are leveraged, Stretch doesn't need to fall much to trigger a chain of liquidations," Cameron said.

This mechanism is already in operation, though losses are currently controllable. According to Artemis statistics, between early June and July 16, there were 116 liquidations involving Apyx and Saturn collateral, with a loan scale of approximately $7.2 million. Almost all debt was recovered. However, if the tokens fall another 10%, according to Artemis estimates (assuming borrowers neither repay nor add collateral), up to $5.7 million of Apyx-related debt could enter the liquidation range.

Powell believes that as long as Stretch still trades below $100, these protocols remain vulnerable. He pointed out that the preferred stock decline in late June once caused Apyx's synthetic dollar to depeg. Neither Apyx nor Saturn responded to Forbes' request for comment. Powell revealed that Maple has rejected about half a dozen lending requests collateralized by Stretch or its tokenized versions, precisely due to volatility.

However, he does not believe Apyx or Saturn will trigger a broader crypto crisis. Neither adds new legal obligations to Strategy, and Stretch's usage in DeFi is not yet widespread enough to cause significant contagion. "Currently, its level of integration with DeFi is not that high," he said.

Greater risk is more likely to transmit back through Stretch itself. If investors redeem tokens en masse, Apyx and Saturn may be forced to sell off reserves, further depressing preferred stock prices. Strategy may face pressure to increase dividends again or buy back shares to boost demand. "This will push up Strategy's cost of capital," Powell stated.

Strive CEO Matt Cole (the company holds about $44 million worth of Stretch and issues its own perpetual preferred stock) believes that traditional brokerages lowering client borrowing limits, rather than DeFi, are the bigger drivers of initial forced selling. "DeFi has learned many lessons about leverage over the years. People who add excessive leverage get wiped out," he said. "The decline of STRC and broader digital credit this time reminds investors to be extra careful when looping leverage."

Saylor is fighting with his back to the wall, beginning to take some desperate measures. Strategy's common stock is recently around $92, down about 78% within a year. According to the controversial metric mNAV promoted by Saylor himself (common stock market cap divided by the company's Bitcoin value), the current stock price is at a deep 33% discount to Bitcoin value. For many years past, the company's mNAV had comfortably stayed above 1.0, enabling it to issue additional stock at prices higher than the Bitcoin-supported value, then use the proceeds to buy more Bitcoin.

Recently, Saylor came up with a "clever" way to fix the severe mNAV problem. On July 23, Strategy announced on X that it would abandon the original formula and switch to a new algorithm that happens to make the metric slightly above 1.0. "The Bitcoin capital market needs new financial language," Saylor said.

The new algorithm calculates as follows: mNAV equals stock price divided by "net Bitcoin per share"—that is, Bitcoin treasury value, minus the par value of out-of-the-money convertible bonds and preferred stock, plus dollar reserves dedicated to dividends, then divided by the fully diluted share count. According to this more complex algorithm, the ratio became 1.02. Miracle! Strategy's mNAV is no longer at a deep discount.

"The only version showing a discount is exactly the one they never use, and that is the one investors should be looking at," Cameron pointed out. "Reality hasn't changed at all; only the mNAV metric they fabricated themselves has changed."

Surprisingly, there are still investors who buy into Saylor's maneuvers.

"I expect Stretch will continue to trade at a discount until Bitcoin breaks out of its current range (approximately somewhere between $50,000 and $70,000). If Bitcoin crashes, it will go even lower," said Dave Weisberger, Wall Street veteran and co-founder of algorithmic trading platform CoinRoutes.

However, Weisberger also believes that Strategy's recent moves "basically reversed the death spiral." Shorts originally assumed selling coins would crash the market, forcing the company to continue selling, and that unless Bitcoin rebounded, Strategy would lose access to capital markets. The result was: Strategy sold coins, and the price did not plummet significantly; subsequently, it issued additional stock and accumulated nearly two years of cash coverage. "Neither disaster scenario happened," he said.

"Strategy doesn't need to go bankrupt for investors to get hurt," Cameron reminded. "The company's real mNAV has compressed to 0.67, Bitcoin prices are falling, and shareholders are still being diluted. It will take a long time for them to return to their initial investment levels."

For Saylor's sake, let's hope those Bitcoin die-hard believers he has always relied on are also patient enough investors.