Strategy's STRC slump prompts Terra comparisons that don't hold up, says analyst

Strategy's preferred stock STRC slid to record lows over the past week, and the fall has revived a comparison to Terra's UST, the stablecoin whose collapse erased about $40 billion in 2022.

While the parallel is spreading on social media, it also misreads what STRC actually is, per Benchmark Research.

Two features invite the comparison. STRC is designed to trade around $100, and it fell to an intraday low near $82.53 last week before closing around $88.65 on Monday, roughly 11% below that level.

Critics have called that a "depeg," borrowing the term used when a stablecoin loses its $1 value. STRC also pays an 11.5% annual dividend, a yield that echoes the 20% return Terra's Anchor protocol advertised before it imploded. A high yield and a price drifting below its target are enough to trigger the memory.

The mechanics are not the same, according to Benchmark-StoneX analyst Mark Palmer. "STRC is not a stablecoin," he wrote in a Monday note.

A stablecoin promises to hold a fixed $1 value, but STRC never made that promise. It is a preferred stock, a class of equity that pays a set dividend, engineered to trade near $100 but with no peg to defend, so it cannot "depeg" the way UST did.

“Strategy’s objective has been to support STRC’s trading at a level near $100, not to guarantee it,” Palmer said. “In our view, what has happened with STRC is best described not as a depeg — something that was never pegged cannot be depegged — but as a market-driven reset of required yield.”

UST was algorithmic, holding its dollar value through a mint-and-burn loop with a sister token, LUNA, and no hard reserves behind it. When confidence broke, the loop unwound and both fell to near zero.

STRC has no such self-reinforcing mechanism. It is backed indirectly by Strategy's bitcoin, which the company said Monday now totals 847,363 coins worth about $54.5 billion.

The drop does affect Strategy's buying engine, however. When STRC trades at or above $100, the company issues new shares and uses the cash to buy more bitcoin.

Below that level the channel stops working - explaining why Strategy has paused it.

Palmer noted that the funding engine had become "less efficient," which was very different from a claim that the company's model is broken.