chernzzz @chernz94 - Twitter Profile

This post was seen by ~1M people yesterday. A few more thoughts on the topic... A. "Steady lads, deploying more capital" This is the infamous meme that comes from the Terra/Luna implosion. Crypto people have scar tissue from the May 2022 implosion of this algorithmic stablecoin. Terra was designed to maintain a $1 peg by using a BTC treasury (Luna) to bid if the price went below $1, and sell if it went above $1. This works great, except in a panic. 4 years ago, panic happened. People wanted out of Terra, so the Luna treasury was automatically drawn down to protect the peg. But this depleted the system's resources and deteriorated its capacity to keep defending the peg, which stoked more fear and exacerbated the exit pressure. Eventually the BTC treasury was depleted, the defense system was exhausted, the peg broke and Terra went to zero. People who lived through that are wary of STRC and other Digital Credit instruments. But, STRC is the opposite fundamental design of this. B. Architected systems vs. free markets Terra/Luna was an architected system that actively used its treasury resources to defend a peg. STRC relies on free-market price discovery to find price equilibrium, and does not promise to maintain a peg. And that is at the heart of why Strategy will be fine, and STRC along with it. Strategy will not expend resources to try to maintain anything. Instead, the free market will find equilibrium on its own. C. How to kill STRC The health of STRC depends on the health of Strategy's balance sheet, because that determines whether STRC holders continue to receive dividends. STRC's market price can depeg and trade at a serious discount... but Strategy's balance sheet is completely unaffected. To attack Terra/Luna, you just needed to create a confidence wobble that forced the system to expend BTC treasury resources to defend the price of Terra. To attack STRC, you need to deplete Strategy's balance sheet. Since they're not actively expending it to defend anything, you would need to send Bitcoin's price to ~$0 and keep it there. Good luck! D. How STRC heals itself STRC trades down in this leverage wipeout to $82. Strategy does nothing; expends no resources. Strategy keeps paying STRC dividends with its unaffected balance sheet strength. Now, investors are getting ~14% effective yield w/ the potential for a ~20% capital gain. STRC is more attractive than it previously was! This attracts more investors. Price is bid up. Strategy will likely increase dividend rate on June 30 to 11.75% or 12%. This makes STRC more attractive still. Price is bid up. STRC dividends keep being paid. Market realizes that Strategy is unimpacted, it was just a leverage wipeout. Confidence in STRC dividends returns. Price is bid up. Back to $100 par. It will take weeks or maybe months, but that is how the free market (and the variable rate dividend mechanic) will restore STRC to $100. And that's why this is the opposite of Terra/Luna's design.

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