Arkham: Strategy paying STRC dividends is not a legal obligation and will not be liquidated.

Author: Arkham; Translation: @金色财经xz

Will STRC be the next LUNA?

Short answer — not exactly.

STRC has depegged, falling to $76.2, a discount of about 24% to par value. Michael Saylor has $1.4 billion on hand to pay STRC dividends, but can he keep this preferred stock alive?

Here is our detailed breakdown:

STRC is a perpetual preferred stock with a par value of $100 per share and a dividend rate of 11.5%.

There are 104.89 million shares of STRC outstanding. At an 11.5% dividend rate, Strategy needs to pay approximately $1.2 billion in dividends annually to maintain this preferred stock.

As of this Monday, Strategy held $1.4 billion in USD reserves.

The key point: Strategy has no legal obligation to pay these dividends. Even if Strategy runs into trouble, Saylor is not obliged to prioritize dividend payments to STRC shareholders.

Unlike Terra LUNA, even if the price of STRC falls, Saylor does not face the risk of being "liquidated."

STRC's price movement purely reflects the market's assessment of the likelihood that Saylor can continue to pay dividends.

If the market believes Strategy is unable to raise funds and pay dividends, investors may dump STRC, but Saylor is not forced to spend money to support the stock price.

So why is STRC falling now?

Investors are selling STRC, possibly because they believe Saylor is unlikely to continue paying dividends in the future, or that he will face difficulties in raising funds, or to chase returns in other stocks.

Will this destroy Strategy?

No. But in the long run, it could severely damage it. To keep STRC alive, Saylor needs to pay $1.2 billion in dividends every year.

If MSTR investors realize that their funds are merely being used to repay earlier shareholders, they may reduce their purchases of MSTR in the future.