STRC Dividend Becomes a 'Poison Pill', $500 Million in DeFi Synthetic Dollars Trapped

Stretch preferred shares plummet: Apyx and Saturn, two DeFi protocols, are under pressure with nearly $500 million in assets.

Written by: Forbes
Compiled by: AididiaoJP, Foresight News

Bitcoin remains sluggish, and Strategy, led by Michael Saylor, is making every effort to maintain investor confidence. However, a chain reaction suddenly threatens two digital dollar products totaling nearly $500 million.

Recently, no company has made crypto investors more anxious than Strategy. As the publicly traded company with the largest Bitcoin holdings globally, it has approximately $58.5 billion worth of Bitcoin on its balance sheet.

In June, Bitcoin fell below $60,000, hitting a new low since October 2024. Strategy's common stock plummeted from a historical closing price of $473.8 to a low of $82, with a current market capitalization of about $28.5 billion. The company's popular preferred stock, Stretch (ticker STRC), also dropped to $74, a discount of $26 from its $100 par value. This preferred stock now pays an annualized dividend of 12%, which is considered junk bond level. Coupled with $6.7 billion in convertible bond interest, Strategy must pay approximately $1.76 billion annually in preferred stock dividends and interest.

Under pressure, Strategy had to abandon Saylor's long-held stance of 'never selling Bitcoin.' The company has authorized the sale of up to $1.25 billion in Bitcoin to bolster cash reserves and cover these payments. From late May to early July, Strategy sold approximately $218.5 million in Bitcoin and raised nearly $1.85 billion through a common stock offering. Currently, cash reserves stand at $3.75 billion, sufficient to cover 2.1 years of current dividends. Saylor's net worth has also shrunk from over $9 billion in early 2025 to about $3.3 billion recently.

However, Strategy's troubles extend beyond its publicly issued financial instruments. Before the crash, Stretch had become a hot commodity for many decentralized finance (DeFi) projects, which sought to convert this hefty dividend into on-chain yield products.

The two largest are Apyx and Saturn, managing nearly $490 million in assets combined: Apyx has $307 million in gross reserves, while Saturn's total locked value is $183 million. According to data from crypto analytics firm Artemis, as of July 21, approximately $267 million is directly exposed to Stretch, with Apyx holding about $196 million and Saturn about $72 million. The remainder consists mainly of cash, tokenized government bonds, and the protocol's own assets.

Apyx holds Stretch and cash in brokerage and custody accounts, using them as reserves to issue synthetic dollars, apxUSD. Unlike traditional stablecoins like Tether's USDT and Circle's USDC, which are backed by cash and government bonds and pegged to $1, apxUSD does not guarantee a constant value of $1; its redemption value fluctuates with the underlying asset composition. 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 at the end of June, apxUSD briefly fell below $0.80. By July 21, its secondary market price on exchanges like Kraken and Curve had rebounded to about $0.90. Excluding minted but unsold tokens and Apyx's own liquidity, Artemis estimates Apyx has about $233 million in reserves, corresponding to a circulating token value of about $257 million, with a coverage ratio of only 90.7%. In other words, investors who thought they bought 'quasi-dollars' are sitting on a paper loss of about 10%. Stretch accounts for 84% of Apyx's reserves. Additionally, eligible investors must wait about 20 days to redeem apyUSD through Apyx.

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

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

The protocol is advertising an annualized yield of up to 27.5%, but only 12 percentage points come from Stretch dividends. The remainder relies on Stretch rebounding from its current price of about $87 back to its $100 par value—a typical optimistic assumption in crypto.

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

Both Apyx and Saturn have restricted access based on jurisdiction and prohibit U.S. users from participating. Eligible investors can purchase products through the company website and trade related tokens in crypto markets like 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 hold on and wait. Early investors may prefer to continue receiving Strategy dividends rather than selling at a loss; new buyers are betting on an increase in Strategy's cash reserves, which could drive Stretch back to $100. If interest rates continue to decline, the attractiveness of this bet will further increase: a 12% dividend (if it can truly be sustained) looks more appealing as other yields fall.

These protocols showcase how DeFi can derive multiple speculations from a single bet (Stretch preferred shares). On the Morpho lending platform, investors can use Apyx and Saturn tokens as collateral to borrow other digital dollars and buy more interest-bearing tokens, creating a cycle. This is known as 'looping'—the crypto version of 'leveraging.' It exponentially amplifies risk: once confidence in the underlying securities is lost, it could trigger a catastrophic collapse. Currently, Stretch and Strategy are in deep trouble.

On the Pendle platform, these tokens can also be split into independent claims on principal and future earnings. 'This is just like splitting a bond into principal and coupon payments,' explained Glenn Cameron, global head of Dallas Bitcoin custody and consulting firm Onramp Institutional. Some positions can even be reinvested in the lending market, allowing traders to borrow more dollars and buy more tokens, continuing the cycle.

Some paths even advertise annual yields of up to 40%, and Saturn's website also offers reward points to participants. If these 'amazing' yields and looping leverage techniques sound like boiler room sales pitches, you should proceed with caution. These investments are located offshore, and currently, no U.S. regulatory agencies are monitoring their products.

Leverage operates just as efficiently and brutally in reverse. When Stretch falls, reserves devalue, token prices follow suit, and loan collateral becomes insufficient. Once the value of the borrower's collateral 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 in a market already filled with anxious sellers, it will further depress prices and trigger a new round of liquidations. 'Because they are leveraged, Stretch doesn't need to fall much to trigger a chain liquidation,' Cameron said.

This mechanism is already in operation, but losses are currently manageable. Artemis reports that from early June to July 16, there were 116 liquidations involving Apyx and Saturn collateral, with a loan scale of about $7.2 million. Almost all debts were recovered. However, if tokens fall another 10%, according to Artemis's 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 remains below $100, these protocols will remain fragile. He pointed out that the decline in preferred shares at the end of June had previously caused Apyx's synthetic dollar to lose its peg. Both Apyx and Saturn did not respond to Forbes' request for comment. Powell revealed that Maple has rejected about half a dozen lending requests collateralized by Stretch or its tokenized versions due to volatility.

However, he does not believe that Apyx or Saturn will trigger a broader crypto crisis. Neither has imposed new legal obligations on Strategy, and Stretch's use in DeFi is still not widespread enough to cause significant contagion. 'Currently, its integration with DeFi is not that high,' he said.

The greater risk may more likely be transmitted back through Stretch itself. If investors rush to redeem tokens, Apyx and Saturn may be forced to sell reserves, further depressing preferred share prices. Strategy may face pressure to either raise dividends again or buy back shares to boost demand. 'This will raise Strategy's capital costs,' Powell said.

Strive CEO Matt Cole (whose company holds about $44 million in Stretch and issues its own perpetual preferred shares) believes that traditional brokerages reducing customer borrowing limits, rather than DeFi, is the larger driver behind the initial forced sell-off. 'DeFi has learned a lot about leverage over the years. People who over-leverage can get wiped out,' he said. 'This drop in STRC and the broader digital credit market reminds investors to be especially cautious when looping leverage.'

Saylor is now fighting for survival, beginning to take some desperate measures. Strategy's common stock is currently around $92, down about 78% in a year. According to Saylor's controversial metric, mNAV (the market value of common stock divided by the company's Bitcoin value), the current stock price is deeply discounted by 33% compared to Bitcoin's value. For many years, the company's mNAV has comfortably remained above 1.0, allowing it to issue stock at prices above the Bitcoin-supported value and use the proceeds to buy more Bitcoin.

Recently, Saylor devised a 'clever' way to fix the severe mNAV issue. On July 23, Strategy announced on X that it would abandon the original formula and adopt a new algorithm that would just allow the metric to be slightly above 1.0. 'The Bitcoin capital market needs a new financial language,' Saylor said.

The new algorithm calculates mNAV as the stock price divided by 'net Bitcoin per share'—the value of Bitcoin treasury, minus the par value of out-of-the-money convertible bonds and preferred shares, plus the dollar reserves specifically for dividends, divided by the fully diluted number of shares. According to this more complex algorithm, the ratio becomes 1.02. A miracle occurs! Strategy's mNAV is no longer deeply discounted.

'The only version showing a discount is the one they never use, and that's the one investors should be looking at,' Cameron pointed out. 'The reality hasn't changed; only their self-invented mNAV metric has changed.'

Surprisingly, some investors still buy into Saylor's maneuvers.

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

However, Weisberger also believes that Strategy's recent actions 'essentially reversed the death spiral.' The shorts initially assumed that selling Bitcoin would crash the price, forcing the company to continue selling, and that unless Bitcoin rebounded, Strategy would lose access to capital markets. The result, however, was that Strategy sold Bitcoin, and the price did not plummet significantly; it then issued more stock and accumulated nearly two years' worth of cash coverage. 'Neither of the two disaster scenarios occurred,' he said.

'Strategy does not need to go bankrupt, but investors will still be hurt,' Cameron warned. 'The company's real mNAV has compressed to 0.67; as Bitcoin prices fall, shareholders are still being diluted. They will need a long time to return to their original investment levels.'

For Saylor's sake, let's hope those Bitcoin loyalists he has always relied on are also patient investors.

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