---
title: "Digital Credit Glossary"
author: "True North Research"
author_url: "https://tnorth.com/crew/true-north-research/"
publisher: "True North"
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markdown_url: "https://tnorth.com/digital-credit/glossary.md"
date_published: "2026-03-25"
date_updated: "2026-03-25"
rendered_at: "2026-05-02T14:13:20.461Z"
section: "digital-credit"
tickers: []
instruments: []
asset_class: "perpetual-preferred-equity-bitcoin-backed"
word_count: 2915
reading_time_minutes: 15
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---

# Digital Credit Glossary

> **TL;DR.** Definitions for every term used in True North's digital credit research. Bitcoin-backed, stated yield, cumulative, BTC Rating, NAV coverage, and 21 more terms.
> — True North Research, True North (https://tnorth.com/digital-credit/glossary/)

> *True North Research is a wholly owned subsidiary of Strive, Inc., the issuer of SATA Stock. True North publishes research and analytics on digital credit instruments — including those issued by Strive and Strategy — using a consistent analytical framework across issuers. This glossary is for informational and educational purposes only, may be deemed an advertisement for SATA Stock and related securities, and should be read together with the applicable prospectus and other SEC filings available on EDGAR.*

### Digital credit

Yield-bearing securities issued by companies with material Bitcoin holdings on their balance sheets. In this glossary, "digital credit" refers to exchange-listed perpetual preferred stock that is senior to common equity, has indirect economic exposure to corporate Bitcoin treasuries, and trades in public capital markets rather than inside loan books or DeFi protocols.

As of early 2026, six such instruments are listed — five issued by Strategy (Nasdaq: MSTR) and one by Strive (Nasdaq: ASST) — all structured as perpetual preferred stock with stated dividend rates currently in the 8.00%–13.00% range. This terminology is descriptive, not regulatory, and reflects how True North organizes this emerging segment of Bitcoin-linked capital-markets instruments. Michael Saylor highlighted this usage at Strategy World 2026 on February 25, 2026, positioning it as the middle layer of a three-layer digital capital framework.

### Digital capital

Bitcoin held as the base reserve asset of a treasury company and treated as the foundational asset from which credit can be issued. In the three-layer framework, digital capital is the balance-sheet substrate — not a payment rail, not a yield instrument, but the reserve base that supports financing capacity. Strategy explicitly frames Bitcoin as digital capital, and its treasury-company model is built around that premise.

### Digital money

The third layer in the digital capital stack: money-like claims built on top of digital credit, which is itself supported by digital capital. The term points to instruments designed for stability, transferability, and near-par behavior — stablecoins, tokenized deposits, and programmable payment rails. It is an architectural way of describing the system, not a formal regulatory category.

### Bitcoin-backed (vs. Bitcoin-collateralized)

"Bitcoin-backed" describes instruments whose economics depend in part on an issuer's Bitcoin treasury — the company holds Bitcoin on its balance sheet and that position is a key part of the investment case. "Bitcoin-collateralized" implies Bitcoin has been formally pledged as legal collateral through a security interest or lien.

Strategy and Strive disclosures state that their preferred securities "are not collateralized by the Company's bitcoin holdings and only have a preferred claim on the residual assets of the company," so they are not Bitcoin-collateralized instruments. In this glossary, "Bitcoin-backed" is an economic descriptor only. These securities do not grant investors any security interest in specific Bitcoin, and in an insolvency or liquidation holders may recover less than stated value or lose their entire investment.

### Stated yield

The annualized distribution rate attached to a security's stated value (par), not the yield implied by the market price. For example, [STRK](/digital-credit/markets/strk/) carries an 8.00% stated yield on its $100 stated value, and [SATA](/digital-credit/markets/sata/)'s variable stated rate was 13.00% on $100 stated value as of April 15, 2026. Stated yield is a reference term, not a payment promise: dividends are paid only if and when declared by the board and only from legally available funds.

### Effective yield

The income rate an investor earns based on the security's current market price rather than its stated value. When a preferred trades below par, effective yield rises above stated yield; when it trades above par, effective yield falls below. For example, at a given point in time [STRD](/digital-credit/markets/strd/)'s 10.00% stated yield on $100 par produced an effective yield of 13.19% at a $75.79 market price, while [STRF](/digital-credit/markets/strf/)'s same 10.00% stated yield produced 9.97% at a $100.29 price; these figures are illustrative and depend on prevailing market prices.

### Cumulative preferred stock

Preferred stock that accrues unpaid dividends in arrears if the board does not declare them. Those arrears must generally be satisfied before dividends can be paid on junior securities. In digital credit, STRK, STRF, [STRC](/digital-credit/markets/strc/), [STRE](/digital-credit/markets/stre/), and SATA are all cumulative — a missed payment is deferred, not erased. Some instruments (including STRF and SATA) carry additional step-up penalties that increase the rate on unpaid amounts, increasing the economic consequences associated with unpaid amounts relative to a simple accrual.

### Non-cumulative preferred stock

Preferred stock where missed dividends are permanently lost — they do not accrue, do not compound, and cannot be recovered. If the board does not declare a dividend for a given period, investors lose that income with no future claim. STRD is the only non-cumulative instrument in digital credit; it carries the same 10.00% stated rate as the cumulative, senior STRF, but with fundamentally different structural protections for income-oriented holders.

### Perpetual preferred stock

Preferred stock with no stated maturity date, meaning the issuer is not required to repay principal on a fixed schedule. Investors underwrite perpetual preferreds as long-duration capital: income-focused, senior to common stock, but without a contractual maturity that provides a pull-to-par mechanism. All six digital credit instruments are perpetual, though each has different dividend, ranking, and optional redemption features. A perpetual that declines to $80 has no structural mechanism forcing it back to $100 — unlike a bond with a maturity date.

### Stated value / par value

The issuer-set reference amount used to calculate dividends, liquidation preference, and sometimes redemption terms. It is an accounting and contractual anchor, not the same as the security's trading price. Strategy instruments use a $100 stated value; STRE uses €100. When STRC's rate is set at 11.50%, the dividend is calculated as 11.50% × $100 = $11.50 per year per share, regardless of where the security trades in the market.

### BTC Rating

A True North analytical metric that divides the current market value of a company's Bitcoin treasury by its total senior financial obligations — including debt principal and preferred stock stated or liquidation value — expressing how many times over Bitcoin holdings cover those obligations at prevailing prices and assumptions. A BTC Rating above 1.0× means Bitcoin holdings could theoretically cover all senior claims at current prices and assumptions; below 1.0× means they could not.

Strategy describes BTC Rating as "illustrative" and "non-agency"; it is not a Moody's, S&P, or Fitch rating, and in preferred-stock analysis it is commonly calculated on notional amounts rather than liquidation preference. BTC Rating is a non-GAAP, non-NRSRO measure created for research purposes, is price-sensitive, can change quickly with Bitcoin and issuance activity, and should not be treated as a static indicator of creditworthiness or a guarantee of dividend payments or solvency.

### NAV coverage / BTC NAV dividend coverage

The ratio of a Bitcoin treasury company's Bitcoin Net Asset Value (BTC price × holdings, typically net of debt) to its annualized preferred dividend obligation, expressing how many consecutive years of current stated dividends the treasury could theoretically fund at prevailing prices without additional appreciation, capital raises, or operating income.

For example, Strive's March 2026 update reported that aggregate Bitcoin, STRC, and cash reserves covered "over 19 years" of SATA dividend obligations at the then-current 12.75% rate and market prices, including a dedicated STRC dividend reserve. (The current stated rate is 13.00% effective April 15, 2026; coverage estimates scale inversely with the rate.) NAV coverage differs from dividend coverage in that it measures time-based dividend capacity rather than point-in-time principal coverage; both are analytical inputs to digital-credit quality rather than standalone guarantees. Coverage is highly price-sensitive — a 50% Bitcoin decline or changes in issuance activity would roughly halve the years-of-coverage estimate. This is an issuer-defined, non-GAAP metric and should be used together with traditional credit and cash-flow analysis.

### Capital structure seniority

The order in which claims are paid or protected when a company distributes cash, restructures, or liquidates. Debt ranks ahead of preferred stock; senior preferred ranks ahead of junior preferred; common stock is the residual claim. In Strategy's stack, public disclosures describe the order as: Debt → STRF → STRC → STRE → STRK → STRD → Common. STRF receives dividends first among preferreds; STRD receives them last. In a liquidation, recovery generally follows the same waterfall, subject to applicable insolvency law.

### Board-discretionary dividend

A dividend paid only if the issuer's board formally declares it and only from legally available funds. Stated yield is not self-executing — cash does not move unless governance and legal-capital conditions are met. On cumulative instruments, a skipped dividend accrues in arrears; on non-cumulative instruments like STRD, a skipped period disappears permanently. All six digital credit instruments carry board-discretionary dividends; none is a contractual debt obligation like a bond coupon.

### Return of capital (tax treatment)

A tax classification under which a distribution reduces the investor's cost basis rather than being taxed as dividend income. Under U.S. federal income-tax rules, basis is reduced until it reaches zero; any further non-dividend distribution is generally taxed as capital gain. Strategy has disclosed that 100% of its 2025 preferred-equity distributions were treated as nontaxable return of capital and has indicated it does not expect to generate current earnings and profits for the foreseeable future, suggesting ROC treatment may persist. Final tax classification is determined annually and is not guaranteed; investors should consult their own tax advisers.

### Bitcoin treasury company

A public corporation that uses Bitcoin as a primary treasury reserve asset and as a financing platform — actively issuing securities, managing its capital structure, and measuring performance in part against Bitcoin-linked balance-sheet growth. The defining feature is not merely holding Bitcoin, but building an entire capital structure around it. Strategy is a prominent example; Strive describes itself as the first publicly traded asset manager organized around a similar model.

### ATM program (at-the-market)

A registered offering mechanism allowing an issuer to sell securities into the public market over time at prevailing prices, rather than through a single block sale at a fixed price. Unlike a traditional overnight follow-on, ATM programs let the issuer sell incrementally, matching issuance to market conditions. ATM programs have become an important capital-raising tool for Bitcoin treasury companies; for example, Strategy's $4.2 billion STRC ATM program sold millions of shares in a single week in March 2026, deploying net proceeds into additional Bitcoin purchases.

From an analytical standpoint, issuing preferred stock via an ATM at or above stated value generally increases per-share BTC NAV coverage for existing preferred holders, while issuing materially below par can reduce that coverage. Issuers are not obligated to issue only at or above par, and investors should review current SEC filings to understand each issuer's ATM usage and pricing.

### Amplification ratio

The ratio of total senior claims (debt plus preferred stock) to Bitcoin market value, expressing how much of a company's BTC-linked asset base has been financed with senior capital rather than common equity. Higher amplification concentrates both upside and downside in common stock: every dollar raised through preferred issuance and deployed into Bitcoin increases BTC per common share without diluting common equity, while preferred holders absorb income obligations.

Strive reports an amplification ratio of roughly 44%, calculated as approximately $437.5 million of debt-plus-preferred against approximately $994 million of Bitcoin NAV in a March 2026 update. The ratio rises as more preferred is issued relative to Bitcoin NAV and compresses if Bitcoin appreciates faster than preferred issuance. Amplification ratio is an analytical, non-GAAP measure, not a regulatory leverage metric.

### Leverage ratio

The ratio of total debt to Bitcoin NAV, measuring how much contractual borrowing sits against the asset base. A lower ratio indicates a larger equity cushion; a higher ratio means less room before obligations exceed coverage. Strive reports a leverage ratio of approximately 1.0%, calculated as $10 million of debt against approximately $994 million of Bitcoin NAV, reflecting minimal debt relative to its Bitcoin treasury.

The leverage ratio is effectively the reciprocal perspective of BTC Rating applied to debt only (Leverage Ratio ≈ 1 ÷ BTC Rating for the debt portion). Leverage ratio excludes preferred equity, while amplification ratio includes it; both should be tracked together when analyzing digital credit structures.

### Volatility refinery

True North shorthand for the capital-structure process that separates raw Bitcoin volatility into different investable claims. Income-oriented holders buy instruments designed to trade around par and pay stated dividends (digital credit), while common equity holders absorb the residual Bitcoin beta after that income layer is carved out. The risk is not eliminated; it is redistributed across the capital stack. Strategy describes STRC as adjusting its rate to encourage trading near par, while MSTR common stock absorbs additional volatility.

### Three-layer model (Digital Capital / Credit / Money)

A framework that organizes this sector into three layers: digital capital (Bitcoin as reserve asset) at the base, digital credit (yield-bearing preferred securities) in the middle, and digital money (stablecoins, programmable payments) at the top. The model maps risk transformation: volatility originates at the capital layer and is progressively reshaped into credit-like and then money-like instruments. Michael Saylor presented this model at Strategy World 2026; it is descriptive, not prescriptive, and is one way of understanding how Bitcoin interacts with capital markets and payment systems.

### CeFi (centralized finance)

Financial services — lending, custody, brokerage — delivered through centralized intermediaries that hold user assets on balance sheet and make credit decisions off-chain. CeFi institutions carry counterparty and governance risk: when the intermediary misprices risk or misappropriates funds, user assets can be frozen or lost. Galaxy Research estimates that the four failed CeFi lenders in the 2022–2023 cycle represented a large share of the CeFi lending market at their collective peak, with Celsius, Voyager, BlockFi, and Genesis collectively erasing approximately $11.2 billion in customer and creditor claims.

Digital credit instruments are also CeFi in structure — exchange-listed, SEC-disclosed, governed by boards and corporate law — but operate under different regulatory, disclosure, and capital-markets frameworks than the platforms that failed.

### DeFi (decentralized finance)

Financial applications executed through smart contracts on public blockchains rather than through centralized intermediaries. Lending, trading, and collateral management are automated and transparent on-chain, with liquidations handled algorithmically rather than by management discretion. By March 2026, total DeFi TVL across all categories was estimated at roughly $98 billion, with DeFi lending protocols specifically accounting for about $55 billion — the largest single category.

DeFi's primary risks — smart-contract exploits, oracle manipulation, governance attacks — differ from the counterparty, board, and capital-structure risks that characterize CeFi and digital credit. Institutional adoption is increasing, including partnerships between large asset managers and DeFi lending protocols, but regulatory and technical risks remain substantial.

### TVL (total value locked)

The aggregate dollar value of assets deposited into a DeFi protocol's smart contracts at a given point in time — analogous to assets under management but with important differences in interpretation. As of early 2026, Aave led DeFi lending with approximately $26 billion in TVL and over $1 trillion in cumulative loan originations since inception; Morpho held approximately $6.9 billion; Compound held approximately $1.5 billion across multiple chains. TVL fluctuates with underlying token prices without any change in deposited amounts and can be inflated through circular depositing, where the same capital is redeposited across protocols. TVL is a useful scale metric but an unreliable standalone valuation metric without protocol-specific context.

### Overcollateralization

A risk-management structure in which the value of assets pledged as collateral exceeds the face value of the obligation, providing a buffer against price declines. In DeFi lending, overcollateralization ratios typically range from 150% to 300% depending on asset volatility; protocols such as Aave state that borrow positions are intended to remain overcollateralized, and MakerDAO documentation describes a 150% liquidation-ratio threshold and 2.5–2.75× collateralization examples for stablecoin issuance. Automated liquidation is triggered when collateral falls below defined thresholds, with no board discretion and limited delay.

In digital credit, "overcollateralization" is sometimes used descriptively — for example, noting that a company's Bitcoin holdings exceed its preferred stock and debt at current prices. This is an analytical ratio, not a contractual pledge: there is no segregated collateral pool, no automatic liquidation trigger, and descriptive "overcollateralization" can invert quickly during severe Bitcoin drawdowns. Investors should not conflate the analytical usage in digital credit with the contractual, enforced overcollateralization of DeFi loan structures.

### Three Arrows Capital (3AC)

A Singapore-based cryptocurrency hedge fund that managed an estimated $18 billion in assets at peak before collapsing in June 2022, triggering cascading insolvency across multiple CeFi lending platforms. The collapse was driven by catastrophic losses on leveraged positions, including large exposure to the TerraUSD/LUNA stablecoin failure, and by extensive unsecured or under-collateralized borrowing. Analyses by regulators and liquidators indicate multi-billion-dollar exposures at Genesis, BlockFi, Voyager, and others, with thousands of creditors and substantial delays or losses in recoveries.

Three Arrows Capital is a defining case study in CeFi counterparty risk and is often cited as an argument for structural overcollateralization, transparent collateral verification, and automatic liquidation triggers in any Bitcoin-linked yield structure — whether implemented on-chain (DeFi) or in traditional capital-markets form.

---

*Terms in this glossary are used consistently across all True North digital credit research. See our full terminology guide in the [Methodology](/digital-credit/methodology/).*

*This content is for informational and educational purposes only. It is not investment advice, an offer to sell, or a solicitation to buy any security. Past dividend rates are not guarantees of future performance. Preferred dividends are declared at the discretion of the board. Bitcoin is volatile and has experienced drawdowns exceeding 70%. Review all offering documents on [SEC EDGAR](https://www.sec.gov/cgi-bin/browse-edgar) before investing.*

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