Strive says digital credit selloff was a liquidation event, not a credit crisis

Latest developments: Digital credit products tied to Strategy’s bitcoin-backed ecosystem suffered steep declines last week before partially recovering.

• Strategy’s preferred stock funding vehicle STRC fell as low as $82.53 on Thursday before rebounding to roughly $90.50, according to Strive Chief Risk Officer Jeff Walton.
• Strive’s SATA dropped into the low $90 range before recovering to about $98.59.
• Walton attributed the move to leverage liquidations and heavy selling pressure rather than deterioration in the underlying credit quality.
• CEO Matt Cole previously described the episode as a “leverage liquidation event, not a credit failure.”
• CoinDesk’s Jennifer Sanasie interviewed Strive Chief Risk Officer, Jeff Walton on Public Keys.

What happened: Strive’s analysis points to forced selling rather than a breakdown in decentralized finance markets.

• Walton said trading data suggests holders sold the instruments, triggering liquidations elsewhere in traditional financial markets.
• He said the event did not appear to originate from DeFi protocols.
• The selloff occurred amid unusually large trading volumes across both securities.
• Walton characterized the volatility as part of the maturation process for a new asset class.

The liquidity story: Strive argues the market’s ability to absorb large trading volumes is a positive signal.

• STRC traded roughly $950 million in volume on Thursday, according to Walton.
• SATA traded approximately $150 million in volume the same day.
• Walton contrasted those figures with BlackRock’s preferred securities ETF, PFF, which he said traded about $77 million in volume.
• He argued deep liquidity is critical for attracting institutional investors and supporting long-term adoption.

Reading between the lines: Strive sees digital credit as a much larger opportunity than current market participants appreciate.

• Walton said investors appeared to rotate between SATA and STRC as yields converged.
• He argued the products are easier to price and trade because markets can continuously assess risk and value.
• Strive believes digital credit could ultimately address a credit market worth roughly $300 trillion.
• Walton described the products as offering one of the most attractive risk-return profiles available in credit markets.

What comes next: Executives contend the recent volatility does not undermine the products’ long-term thesis.

• Walton emphasized that SATA and STRC are credit instruments, not stablecoins.
• He said Strategy’s balance sheet remains significantly healthier than during the 2022 bitcoin bear market.
• According to Walton, Strategy currently carries roughly 10% leverage compared with approximately 130% leverage during the prior cycle.
• He expects market participants to better understand the products over time and believes prices will gravitate back toward their $100 target levels.