STRC: MicroStrategy's New Weapon

Unlike the preferred stock products issued in the past, the price of STRC will be controlled within a narrow fluctuation range of 99 to 101 dollars, and the main way to return benefits to holders is through high dividend payments made monthly.

Written by: Liu Jiaolian

MicroStrategy Inc. has announced the public issuance of a new preferred stock STRC, officially named "Variable Rate Series A Perpetual Stretch Preferred Stock." The planned issuance amount is 5 million shares, with a par value of 100 dollars per share, raising a total of approximately 500 million dollars. The annualized dividend for STRC starts at 9%, paid monthly. If payment is delayed, the unpaid dividends will accumulate with monthly compound interest until fully paid. MicroStrategy may adjust the dividends within a reasonable range monthly according to changes in the SOFR rate to keep the stock price close to the par value of 100 dollars.

This product is very interesting. Unlike previous preferred stock products, the price of STRC will be controlled within a narrow fluctuation range of 99 to 101 dollars, while primarily returning benefits to holders through high dividends paid monthly.

Yes, you heard it right. This STRC sounds very much like the well-known synthetic stablecoin or algorithmic stablecoin. However, traditional algorithmic stability is 1 coin pegged to 1 USD, whereas STRC is 1 STRC pegged to 100 USD.

The endorsed asset of STRC is BTC. It inevitably brings to mind the Luna/UST disaster from back in the day. If Luna/UST had successfully pegged to BTC, would it have survived instead of collapsing? Unfortunately, history has no "what ifs." Or perhaps, conversely, Luna/UST is merely a preview of what is about to happen with BTC/STRC?

The table below compares the product characteristics of STRC, STRK, STRF, and STRD.

What mechanism does this STRC use to keep its price fluctuation range consistently between 99 and 101 US dollars?

The answer is very simple, it's through open market operations similar to what the Federal Reserve does to intervene in the market exchange rate.

As shown in the figure above:

When the price of STRC exceeds 101 USD, MicroStrategy is concerned that the stock price may be too high, leading investors to overpay or making arbitrage difficult to control. Therefore, they will:

(1) Reduce the dividend rate of STRC (lower attractiveness, causing stock price to decline)

(2) Increase the issuance of STRC in the secondary market at a price of 101 USD or lower.

(3) Redeem the issued STRC at 101 US dollars (repurchase high-priced notes to avoid expanding interest burden)

These three steps can release more liquidity into the market, reduce dividend costs, and thus lower prices back to the target range.

When the price of STRC is below 99 USD, it indicates a lack of market confidence and increased selling pressure. To prevent a vicious decline, MicroStrategy will:

(1) Increase the dividend rate of STRC (enhance attractiveness to bring investors back)

(2) Stop the issuance of STRC at a market price below 99 USD (i.e., suspend the sale of new shares through the ATM (At-The-Market) mechanism to avoid price suppression)

These two steps are tightening measures to reduce supply, increase revenue, and support prices.

Will the BTC/STRC structure experience a death spiral? Theoretically, it is possible:

1. STRC fell below $99, and the market expects the dividend to be increased (the company promised to maintain the price and will be forced to raise the interest rate).
2. Increasing dividends = Increasing burden, if BTC falls or finances tighten, the company's ability to continue raising interest will weaken.
3. Investors realize that "the space for interest rate hikes is limited + buybacks are a long way off," leading to a panic sell-off of STRC.
4. STRC is dropping even more severely, and the company can no longer use ATM issuance for financing (sales stopped because it is below $99)
5. Funding cut-off, unable to continue buying BTC, the market loses narrative support, STRC becomes a high-yield zombie ticket
6. Staying long-term in the discount range, turning into "de facto junk bonds," completely unanchored.

However, it is important to note that STRC is a "perpetual preferred stock," not an ordinary debt instrument. It has no maturity date and no mandatory repayment obligation, theoretically allowing for the indefinite deferral of unpaid dividends, resulting in an accumulation of book liabilities, thus transforming into a heavy quasi-debt structure.

So under what circumstances could the systemic risks that trigger a death spiral occur?

1. Bitcoin crashes (BTC drops to 50k or lower), leading to the shrinkage of MicroStrategy's balance sheet, resulting in unsustainable dividends.
2. The overall liquidity of the preferred stock market is tightening, with no new buyers taking over.
3. A decline in credit rating or regulatory intervention (e.g., SEC questioning disclosures) triggers collective selling pressure from holders.
4. STRC has fallen to the $95-$90 range, completely decoupled, and MicroStrategy is unable to adjust interest rates or buy back.

The financial structure of BTC/STRC is fundamentally different from that of the exploded Luna/UST.

First, as the backing asset for UST, Luna can be automatically and infinitely minted by algorithms, while BTC, as the backing asset for STRC, clearly cannot be infinitely minted under the control of micro-strategies.

Second, UST, as a stablecoin, is essentially a liability that must maintain its peg (1 UST = 1 USD) in order to settle the liability. In contrast, STRC, which is softly pegged to 100 USD, is essentially a stock (preferred stock) rather than a bond (liability). The product does not have a mandatory redemption promise, so MicroStrategy will not be dragged down by default clauses and can choose to lie flat and ignore it in the face of extreme risks.

First of all, STRC is a "perpetual preferred stock" rather than a debt. It has no maturity date, and MicroStrategy is under no obligation to repay the principal at any time. It has no fixed payment obligations, unlike bonds or loans, and unpaid dividends do not trigger a default. Even if dividend payments are stopped, it is not a default, but merely "cumulative priority," meaning that if dividends are paid in the future, they need to be made up first.

Secondly, MicroStrategy can freely adjust dividends. The interest rate is fluctuating, and MicroStrategy can moderately increase it, but it is not an unlimited obligation. Once it is determined that the cost of maintaining stability is too high, MicroStrategy can stop adjusting or no longer support the price.

Third, STRC does not have a mandatory redemption mechanism. STRC is not a "putable" instrument, and ordinary investors do not have the right to demand the company to repurchase. "call @ $101 (redeem at $101)" is a selective right of the company (callable), not an obligation.

Finally, STRC does not have conversion rights linked to common stock. STRC cannot be converted into common stock (unlike convertible bonds), so it will not lead to forced dilution.

From a legal and structural design perspective, Strategy has no obligation to maintain STRC within the 99-101 USD range. Even if STRC drops to 80 USD or 50 USD, the company will not automatically default. However, this flexibility brings a high dependence on market trust — once the "abandoning price support" is confirmed by the market, the consequence is not a technical default, but a complete collapse of confidence.

The collapse of Luna/UST is the failure of the stablecoin (UST) backed by the token (Luna), ultimately both are lost. However, if BTC/STRC collapses, it is the stablecoin (BTC) failing to back the stablecoin (STRC), ultimately at least BTC will still survive.