Woofun AI reports that the collapse of Strategy’s STRC preferred stock has triggered a systemic crisis for decentralized finance protocols Apyx and Saturn, trapping approximately $500 million in assets. The turmoil stems from Strategy, led by Michael Saylor, facing severe financial distress as its Bitcoin holdings and equity values plummet, forcing a chain reaction through derivative yield products that rely on STRC dividends. This exposure highlights the fragility of DeFi structures built upon volatile traditional finance instruments, where the failure of a single underlying asset can cascade into widespread insolvency across synthetic dollar ecosystems.

The financial deterioration of Strategy is evident in its balance sheet and market performance. The company holds approximately $58.5 billion in Bitcoin, but the asset’s price weakness has eroded confidence. In June, Bitcoin broke below $60,000, reaching its lowest level since October 2024. Consequently, Strategy’s common stock fell from a historical high of $473.8 per share to a low of $82, resulting in a current market capitalization of about $28.5 billion. The preferred stock, Stretch (code STRC), also suffered, dropping to $74 and trading at a $26 discount from its $100 face value.

This instrument now pays an annual dividend of 12%, a rate comparable to junk bonds. Combined with interest on $6.7 billion in convertible bonds, Strategy owes approximately $1.76 billion annually in preferred stock dividends and interest. To manage this burden, the company abandoned its "never selling Bitcoin" stance, approving the sale of up to $1.25 billion in Bitcoin to replenish cash reserves. From late May to early July, Strategy sold about $218.5 million in Bitcoin and raised nearly $1.85 billion through a secondary offering of common stock. Its current cash reserve stands at $3.75 billion, sufficient to cover dividends for 2.1 years.

Meanwhile, Saylor’s net worth declined from over $9 billion at the beginning of 2025 to around $3.3 billion recently.

The impact of this distress extends deeply into the DeFi sector, particularly affecting Apyx and Saturn. These two protocols manage combined assets worth nearly $490 million, with Apyx holding $307 million in reserves and Saturn locking up $183 million in total assets. According to Zheng Jie Lim, an analyst at Artemis, as of July 21, approximately $267 million was directly exposed to Stretch. This exposure is split between about $196 million in Apyx and about $72 million in Saturn. The remaining assets are primarily cash, tokenized Treasury bonds, and the protocols’ own internal holdings. This direct linkage means that any depreciation in STRC’s value immediately translates to reserve shortfalls in these synthetic dollar systems, creating a precarious situation for investors who assumed stability in their underlying collateral.

Apyx’s mechanism illustrates the complexity and risk of these synthetic structures. The protocol holds Stretch and cash in brokerage and custody accounts, using them as reserves to issue synthetic dollars called apxUSD. Unlike traditional stablecoins such as Taida USDT and Circle USDC, which are backed by cash and Treasury bonds and pegged at $1, apxUSD does not guarantee a constant value. Its redemption value fluctuates with the underlying asset portfolio. Investors seeking yields can deposit apxUSD at Apyx in exchange for another token, apyUSD, thereby sharing in Stretch’s semi-monthly dividend income.

During the sell-off at the end of June, apxUSD dropped below $0.80. By July 21, its secondary market price on exchanges like Kraken and Curve had rebounded to around $0.90. After excluding already minted but unsold tokens and Apyx’s own liquidity, Artemis estimates that Apyx has about $233 million in reserves, corresponding to a circulating token value of about $257 million. This results in a coverage ratio of only 90.7%, meaning investors who thought they were buying "quasi-dollars" have already suffered an approximate 10% paper loss. Stretch accounts for 84% of Apyx’s reserves.

Additionally, eligible investors need to wait about 20 days to redeem apyUSD through Apyx. Apyx is registered in the British Virgin Islands. Its main backer is DeFi Development Corporation, the first publicly traded crypto treasury company focused on accumulating SOL (whose price has been nearly halved since early 2026). Like many digital asset treasury companies, its stock price has also plummeted from $42.50 in May last year to around $2.70 recently.

Saturn operates with a slightly different structure but faces similar vulnerabilities. Its stablecoin, USDat, is backed by tokenized Treasury bonds. Investors seeking higher yields can exchange it for the interest-bearing version, sUSDat, which is primarily supported by Saylor’s Stretch preferred stock. As of July 21, Stretch accounts for about 94% of sUSDat’s reserves, with each sUSDat worth approximately $0.90 of USDat. The protocol promotes an annual yield as high as 27.5%, but only 12 percentage points come from Stretch dividends. The rest relies on Stretch recovering from its current price of around $87 to its $100 face value—a typical crypto optimistic assumption.

According to PitchBook, Saturn is headquartered in Philadelphia, incubated by YZi Labs, and has received investment from Spartan Group, Anchorage Digital, and others. Both Apyx and Saturn restrict access based on jurisdiction and prohibit U.S. users from participating. Eligible investors can purchase products through the company’s official website and trade related tokens on crypto markets such as Curve and Pendle. This geographic restriction does not mitigate the financial risk, as the underlying asset’s volatility remains a global factor.

Woofun AI data shows that investor sentiment and leverage risks further complicate the situation. Sid Powell, co-founder and CEO of crypto lending platform Maple Finance, noted that buyers, mostly retail investors and mature yield funds, still have reasons to hold on. Early investors may prefer to continue receiving Strategy dividends rather than selling at a loss, while new buyers are betting that Strategy’s increasing cash reserves will help push Stretch back to $100. If interest rates continue to fall, the appeal of this bet will increase further: a 12% dividend (if it can indeed be sustained) appears even more attractive when other yields are declining.

These protocols illustrate well how DeFi can derive multiple speculations from a single bet. On the Morpho lending platform, investors can use Apyx and Saturn tokens as collateral to borrow other digital dollars, then buy more interest-bearing tokens, repeating this cycle. This is what is known as "looping"—the crypto version of "borrowing to amplify holdings." It amplifies risks exponentially: once confidence in the underlying assets is lost, it can lead to catastrophic collapses.

Glenn Cameron, global head of Onramp Institutional, a Dallas-based Bitcoin custody and consulting firm, explained that some positions can also be invested in the lending market, allowing traders to borrow more dollars, buy more tokens, and continue the cycle. Some approaches even claim annual yields as high as 40%, and Saturn’s official website offers reward points to participants. If these "astonishing" yields and looping tactics sound like something a boiler room salesman might say, you’d better be cautious. These investments are located overseas, and no U.S. regulatory agencies are currently overseeing their products.

The mechanics of liquidation are already in motion, exacerbating losses. As Stretch falls, reserves depreciate, token prices drop, and loan collateral becomes insufficient. Once the value of borrowers’ collateral falls below the threshold required by Morpho, external liquidators (usually automated bots) can repay debts and take the collateral at a discount. If they then sell in a market already filled with anxious sellers, it will further depress prices and trigger another round of liquidations.

"Because of the leverage, Stretch doesn’t need to fall much to trigger a chain of liquidations," Cameron said. This mechanism is already in operation, though losses are currently controllable. According to Artemis, from early June to July 16, there were 116 liquidations involving Apyx and Saturn collateral, with loan amounts totaling about $7.2 million. Almost all debts were recovered. But if tokens fall another 10%, according to Artemis’s estimates (assuming borrowers neither repay nor add collateral), up to $5.

7 million in Apyx-related debts could fall into liquidation. Powell believes that as long as Stretch trades below $100, these protocols remain fragile. He pointed out that the decline in preferred stocks at the end of June caused Apyx’s synthetic dollar to become unpegged. Neither Apyx nor Saturn responded to Forbes’s requests for comment. Powell revealed that Maple has rejected about half a dozen lending requests using Stretch or its tokenized versions due to volatility.

However, he doesn’t think Apyx or Saturn will trigger a broader crypto crisis. Neither has imposed new legal obligations on Strategy, and Stretch’s use in DeFi isn’t widespread enough to cause significant contagion. "Its integration with DeFi isn’t that high yet," he said.

Systemic risks extend beyond DeFi into traditional market impacts. Greater risks are more likely to stem from Stretch itself. If investors collectively redeem tokens, Apyx and Saturn may be forced to sell reserves, further depressing preferred stock prices. Strategy may face pressure to raise dividends again or buy back shares to boost demand. "This will increase Strategy’s cost of capital," Powell said. Matt Cole, CEO of Strive (which holds about $44 million in Stretch and issues its own perpetual preferred stock), believes that traditional brokers cutting clients’ borrowing limits, rather than DeFi, is the bigger driver behind the initial forced sales.

"DeFi has learned a lot about leverage over the years. People who take on excessive leverage get wiped out," he said. "This decline in STRC and broader digital credit reminds investors to be extremely careful when using looping leverage." The interaction between traditional brokerage constraints and DeFi leverage creates a feedback loop that can accelerate asset depreciation, making it difficult for any single entity to stabilize the market without coordinated intervention.

Saylor’s response to the market reaction has been controversial. Strategy’s common stock is currently around $92, down about 78% in a year. Calculated using Saylor’s controversial metric, mNAV (common stock market cap divided by the company’s Bitcoin value), the current stock price is deeply discounted by 33% compared to Bitcoin’s value. For years, the company’s mNAV has comfortably stayed above 1.0, allowing it to issue more stocks at a price higher than Bitcoin’s support value and use the proceeds to buy more Bitcoin. Recently, Saylor came up with a "clever" way to fix the severe mNAV problem.

On July 23, Strategy announced on X that it would abandon the original formula and adopt a new algorithm that just barely keeps the metric above 1.0. "The Bitcoin capital market needs new financial language," Saylor said. The new algorithm calculates mNAV as stock price divided by "net Bitcoin per share"—that is, the value of Bitcoin treasuries minus the face value of worthless convertible bonds and preferred stocks, plus the dollar reserves dedicated to dividends, all divided by the fully diluted number of shares. With this more complex algorithm, the ratio becomes 1.02. Miraculously!

Strategy’s mNAV is no longer deeply discounted. "The only version that shows a discount is the one they never use, and that’s the one investors should pay attention to," Cameron pointed out. "The reality hasn’t changed; it’s just their self-invented mNAV metric that has changed." Surprisingly, some investors still buy into Saylor’s moves. "I expect Stretch to continue trading at a discount until Bitcoin breaks out of its current range (around $50,000 to $70,000). If Bitcoin crashes, it will go even lower," said Dave Weisberger, a Wall Street veteran and co-founder of algorithmic trading platform CoinRoutes.

However, Weisberger also believes that Strategy’s recent actions "basically reversed the death spiral." Bears originally assumed that selling Bitcoin would trigger a dump, forcing the company to keep selling, and that unless Bitcoin rallied, Strategy would lose access to capital markets. Instead, Strategy sold Bitcoin, but prices didn’t fall significantly; it then issued more stocks and accumulated cash to cover needs for nearly two years. "Neither of the two disaster scenarios happened," he said.

The future outlook remains uncertain, marked by dilution and the need for patience. "Strategy doesn’t need to go bankrupt, but investors will still be hurt," Cameron warned. "The company’s real mNAV has shrunk to 0.67. With Bitcoin prices falling, shareholders are still being diluted. It will take a long time for them to return to their original investment level." For Saylor’s sake, it’s hoped that those Bitcoin die-hard believers he relies on are also patient enough investors. The structural changes in Strategy’s financial reporting and the ongoing stress on DeFi protocols suggest that the market is in a transitional phase, where traditional metrics are being redefined to accommodate new realities. This marks a critical juncture for both Strategy and the broader DeFi ecosystem, as they navigate the consequences of high-yield strategies in a volatile market environment.