Bitcoin Credit Meets Stablecoins: Inside Saturn's Yield Stack

We have Ellis Osborne joining us from Saturn Labs. Ellis, how are you doing today? Welcome to the show. Doing great. Pleasure to be here. Thanks for having me. How are you guys? You are so great, man. Been having a great day. Honestly, this is, like, just the two conversations we've had so far have been incredibly life giving and interesting and full of energy and and insight. So we're gonna keep that going with you, man. Excited to hear about Saturn and and what you're building, and maybe we start there.

We'd love we'd love an intro on you and the high level of Saturn, and then we can we can dive into some specific angles around how you guys think about digital credit and the space that you're in or what what you're challenging here.

Sure. So my name is Ellis. I've been a Bitcoin miner for about nine years. Someone basically, like, plopped a rig in my lap and was like, hey. You wanna try this? And I was like, I have no idea what this is. Let me research a little bit, and then, of course, got orange peeled. And I've been a miner, albeit, like, a little bit in the red ever since. I then was a Bitcoin fine investor. Unfortunately, I got hurt a little bit there, but my thesis was that Bitcoin, you know, has applications beyond a store value.

And, really, like, the applications on top of Bitcoin were being created in traditional finance.

You need the size and depth of traditional markets unfortunately, not the instantaneous mark to mark of crypto to make products on And so while I did get burnt really badly as an investor, I realized that, know, strategy and some of these large institutions that were now collateralizing Bitcoin and basically what I like to call, like, creating Bitcoin for your grandma or making different risk return profiles or, like, different volatility instruments on top of Bitcoin was really how there would be mass global adoption.

So that's, like, the core premise of Saturn. Now my other cofounders, Kevin and Sebastian, they have had building experience in stablecoins and DATs. I have some experience in in DeFi, and then we kind of all come together in this track back to to bring digital credit to the world through DeFi integrations along with the stablecoin. But at hardware, a structured finance company on top of digital credit.

So I'm just So how and we I would like to

Okay. I wanna go back to the, like, Bitcoin. A little bit of the hit like, start with, like, where we've been a little bit. And then, Zach, if you wanna dive into, like, the nuances of the of what the build is. But, like, I personally, as Zach kind of alluded to, I'm, like, the similar kind of background or, like, story of how we got into the space, like, the premises of Bitcoin, the philosophy of it, how it like, the role it was it is and and should play in the world.

All that stuff was, like, extremely fascinating as you think about, hey. I have a career to go figure out. I'm 29. So it was, like, you know, 2016, 17, 18. You're like, how do you what what what space am I gonna swim in throughout my career? And the money space and Bitcoin, everything that was happening there just kind of engulfed me, but it was because of Bitcoin. I feel like the process of figuring out how you work professionally in that industry has been interesting.

It's been an interesting process of, like, hey. I align philosophically with this mission, but what does it actually look like to bring that personally into a day to day job or pursuit? So it's been, like, interesting personally to go on that journey myself throughout that's how I've always thought of my career is, like, I'm I'm working in this space. And I've I've been, I would say, for the last two or three years, pretty far removed from this, like, Bitcoin professional community.

I'd love your thoughts as someone who's kind of entering the market right now where you when I say that, like and it sounds like you're post grad, like, entering this this season of building something. Where has that community been in the last, like, three to five years? I know that, like, you have these, like, really interesting Bitcoin focused companies like Lightspark and others who are doing really interesting stuff. But what is the, like,

current state of that? I think the grim reality is a lot of people that are Bitcoin or Bitcoin adjacent are burnt. And so I was a recreational miner, skilled operation. But candidly speaking, folks that are considering, like, occupations in in Bitcoin or Bitcoin adjacent spaces are just, like, unhappy with historical performance and are therefore, like, swayed against it.

I do think, though, more traditional paths, again, like the big asset managers of the world, whether it's BlackRock, Fidelity, Schwab, you know, you see folks that are my age going into digital credit arm or digital asset arms at these big institutions. I think it's more of a traditional path that is now converging with DeFi and and Bitcoin at large, which is kinda like the thesis at the end of it. Right? Like, people that are like, oh, we want DeFi.

We want this very permissionless and independently run version of finance versus finance. And in reality, it should just be, like, one conglomerate where it's just like this is finance. There are some parts that are decentralized, some parts that are centralized, and it's just about finding the strengths and weaknesses of both. Is that disappointing to you or not what you expected? It's not what I expected, but it's definitely not disappointing.

I think for mass adoption, again, you don't want to build, like, this niche community where there's, like, gatekeeping and individual access. It's like, how do we bring this mainstream? And for that, it's just like a convergence of maybe crypto's use case is just finance. But it's finance at its core, not, like, an individual pocket of it.

So so go ahead. Go back a little bit to to Penn Blockchain. Like, we don't get to talk with you know, we talk I think we talked to a few teams that, you know, they're they're thirty years, you know, out of college. Like, this is this feels like a foreign world to them, and sometimes I think I'm ten years out of college now. And what's the sentiment like of crypto with this this younger generation that may be coming out of high school, going into college? They may be getting involved with these blockchain clubs.

Like, I imagine even their entry points into crypto is vastly different than yours. You know, they might have gotten through a phantom wallet and trade And blockchain looks legit too. Like, is this the same Penn blockchain? No.

Yeah. It's the same one. It is. It is. I mean, this is not like I mean, they got a website. This looks this looks like I mean, look at this thing. What what is something like university

club? You know, what is capturing, you know, college students? What's what's capturing their attention? You know, what rabbit holes are they diving deep into? Is it still Bitcoin mining? Is you know, we've seen the the how many different chains and smart contract languages? You know, now we've seen the rise of stablecoins. Like, help us understand where where some of this this sentiment has is among this community. It's the same reason that

I continue to become a Bitcoin miner. You have agency, and you have satisfaction as a young individual. You're not put on a team because of your Rolodex or how many years you've been in industry. If you can provide, like, unique thoughts to novel problems, you're valued.

And part of that is kind of, like, how crypto works, where, like, I can be an anon on crypto Twitter and make a post that people understand my views, and I get valued adequately instead of having to go through, like, this pipeline of, you know, going up rings on a ladder. So there's a wide variety of interests. I think a lot of it has to do on the finance side, and then, you know, there's a fair bit of folks that are trying to build on the cutting edge on the research and development side as well.

So I wouldn't say there's a specific niche, but in reality, like, people are just happy because they're given agency, and they're valued in organizations. I mean, Saturn is are all Penn folks. We know each other through this organization that built us,

and we're very happy to be alumni there. It's awesome. Now let's It seems like a huge pillar. It's awesome. Yeah. I wanna go deeper a little bit, though, into the product, and I'm I'm specifically looking at your website about what makes this model different, why purchase s u s u s d a t over over STRETCH, over STRC. Help us understand a little bit about the core pillars of the Saturn ecosystem from your your stablecoin, the yield bearing of stablecoin. We talked actually with with Solsys about Stretch on last week.

But Mhmm. Help us yeah. Give us the give people the overview of the Saturn ecosystem, and then we can dive probably a little bit deeper into the the why behind the ecosystem.

Sure. So Saturn revolves around two core assets. You have USDAT, which is an unstake stablecoin backed by T bills. Now this is very intentional that it's not backed by digital credit. We wanna build as much liquidity on this stablecoin layer as possible so that people can instantly go in and get access or economic exposure to Stretch. We've chosen not to have this stablecoin backed by digital credit so that in the case of Stretch NAV drawdown, the stablecoin is still a stablecoin. It's backed again by T bills.

Now what a user will do is they'll access USDAT, and then they'll stake it for s USDAT, which is our staked version and has about 90 to 95% of exposure in stretch, which is MicroStrategy or Michael Saylor's digital credit product. It's, about, I think, 29% LTV right now, and, essentially, what Strategy is doing is they're borrowing cash at 11 and a half percent to buy Bitcoin. So it's essentially a credit instrument that's backed by Bitcoin.

Now these are our two core assets that we have today, but the real utility of Saturn is building the applications on top of it. So for example, if you're a credit fund and you want lower volatility, I. A senior tranche or you're a more active investor and you want leverage exposure to Stretch, you may buy the junior tranche. You can also collateralize these instruments, both the native assets and the tranches and everything in between. Right?

Like, what we've done is taken stretch and made it from a single point on the risk return curve and literally stretched it for any investor in the world. That is, like, the premise of Saturn. And, yeah, like, we've hit about 245,000,000 in TVL

in the last about six weeks since launch. Wow. And so how do navigate the Saturn app here? So, like, what are we looking at? How do you I know it's not available, at least at least where I am, but how do you walk people through how to think about what we're looking at here at the app? Yes. So as you see,

we'll just deposit USDC and swap into USDAT, which, again, is the stablecoin backed by CBILS. And then you can go and stake it, which is the tab over next to swap. You'll take your USDAT and swap it into s USDAT and therefore getting exposure to Stretch. So then yeah. Well, then then the big question. Right?

Why not just go get exposure to Stretch by buying it?

So a couple of things. Obviously, we don't sell to US folks and OFAC sanctioned countries, but Stretch is a US equity, meaning that you need a US brokerage account to access it. Anyone in the world can get economic exposure through Saturn to Stretch. In addition, USDAT is backed by T Bills. What we do is we pass that T Bill yield to ex USDAT. So we're effectively amplifying Stretch and giving Stretch plus yields.

Like, as you saw at the dashboard, we're offering, like, 15%, while Stretch today is offering 11 and a half percent. And then, like, the third and most important thing, again, why we're just not a tokenized equity play, is you can do very interesting things on top of Right? You can make a basket of goods. You can make a leveraged product. You can tranche stretch.

There are all sorts of applications that can be built on digital credit, and we're literally in the first inning of of these products, which we think will take a huge chunk of the fixed income interest industry. What are you hoping gets built? I was yeah. I was just gonna go there because we we've heard this quite a bit recently. Yeah. From our perspective, we wanna be the bit wise of digital credit. We wanna structure products on top of this, and it will become an asset class of its own.

Again, it's kind of we're in the the first days. So you see these volatility spikes, and people are freaking out. When in reality, like, you need to keep your eyes on the bigger picture. Tradify doesn't understand Bitcoin as collateral. They literally called it negative capital. But there's a massive mispricing right now in the market, which is why the structure is paying such high yields.

But we think that this asset class, as it matures, there will be applications like Saturn, and, of course, you know, we invite other people to build on top of digital credit in the future. But, really, this is where fixed income I mean, more innovative and more diverse products on top of Bitcoin start to form.

How how do you define for those who don't know who Bitwise is or what business they're in, like, how would you define what that means in that context? Like, the Bitwise of digital credit. So how go go maybe it's more simple on that explanation.

Yeah. We wanna build products that are not just like, hey. Here's Bitcoin exposure. Maybe it's combining a basket of goods that give you a higher Sharpe ratio on top of of stretch itself or digital credit.

Maybe it's offering a levered you know, ETF is not exactly the the right word, but an equivalent for an on chain product, or it's powering a neobank with a senior tranche version of Stretch where the volatility is reduced, and, you know, these the junior tranche is capturing the first loss capital, but the senior tranche is really protected so that someone in Argentina, for example, can earn 8% back by stretch with lower volatility than the actual asset.

We want to just be able to build products on top of the platform layer that strategy is building today.

How do you think about and how do you approach maybe education with these yield products? I'm thinking through, like we talked with USDAI similar again. You know, you kinda look at it. You're like, hey. Stablecoin that's being deployed into this strategy. You're getting 11% yield from Stretch. They're getting 11% yield from GPU financing. And, obviously, there's different personas that you have to educate.

But do you think the market cares that their yield's coming from Stretch and ultimately coming from Bitcoin, or do they just care about eight, nine, 11%

yield? That's actually a great question. I wanna tell, like, a little story, which is very funny. So Michael and the strategy team invited us to go speak at his conference, and we had this fireside chat with or rather a private meeting with a CIO at a big digital asset treasury company. And he's like, we sell our product to credit funds. Now they don't even know that Bitcoin is the underlying instrument. They're just like, what is the cash reserve?

So if you're selling to a traditional institution, there are factors that are not, hey. What's the quality of Bitcoin as a a collateral or, what's the cash reserve? They're kind of unique segments that we're learning that we have to target. The reality is for us, we don't wanna say that stretch is this safe or that safe. We just wanna be very transparent and very explicit that these are the risks that you're undertaking.

And since Bitcoin can be priced in real time, you know, you can just validate on chain, you can say exactly what your collateral is at any point in time from any point in the world. There's no, like, redemption issues like we're seeing in TradFi. There's no, like, oh, guessing at the end of the quarter. It's more like if I wanna instantaneously verify the health of this credit instrument at 2AM from Singapore, I can go do that. So that's kind of, like, the education we're focused on.

It's allowing people to underwrite stretch effectively and the instruments built on top, not saying, you know, this is safe or this is unsafe. Yeah.

What are the differences there? And I think that's maybe the that that specific difference is a big one because those who are in the business of recommending or curating, like, strategies as a recommendation to buy or sell an asset, that that seems to me to be, like, a more unique the implications of that business are different. The the type of business that that is is different.

How do you see the differences there for, like, being able to build these types of experiences, but not be necessarily in that business of, like, recommending or I think we're, like, maybe for us, like, we see a lot of these early attempts at, like, building this early market, and it's hard to tell the difference sometimes because there aren't many people yet doing this, and you like you said, we're so early.

Like, we've talked with, like, you know, we've talked with we've talked with Bitwise, and we've talked with the Birchhill Labs team. We're gonna be talking we've talked interviewed Gauntlet. That that episode is launching soon. Like, there's a lot of different approaches in this similar conversation, but they all then these nuances seem really key.

I think the depth of education is very important. And similar to what you said, it's not about selling the instrument. It's about giving instantaneous and very granular transparency, because the reality is for Saturn to grow, you need applications who are permissionlessly building on top of it. For example, integrating with Pendle, integrating with Morpho, integrating with Strata, and building these Trash products. We're not selling them on Stretch.

We're showing them what's capable, and then they plug into their own permissionless or even permissioned DeFi protocols on top. That is the force multiplier for Saturn as opposed to us, like, being boots on the ground and trying to sell every LP on Stretch itself. Like, we also have the largest support in the world. Right? Sailor is going online and and selling Stretch for us.

We are trying to build more personalized and unique products that other types of investors, maybe not traditional stretch investors, could gain access to. Are you are you familiar with the USD

AI business? We met with David, top of the top of the show. Like, how would you compare and contrast what, like, maybe the part of the stack that Saturn is fitting in, and how you might compare that to what they're doing with with chips and AI. I mean, first of all, I'm a very big fan of the business. I was I was a Bitcoin miner, so I understand

the value of taking loans on depreciating assets and the unique proposition to to scale the growth of these data centers. We run a very similar model for regulatory reasons, but at the end of the day, it's like, do you want isolated exposure to Bitcoin, which in my opinion is a very strong asset that's, again, verifiable in real time, or do you want homogeneous access to these GPU loans?

Both are interesting sources of yield, but it just depends on again, like, maybe there's a an ETF fund that's combined I was kind of these two assets. I was just gonna go there. I'm thinking, like, Onray,

Saturn, USDAI, and then the Hashtra, Prime figure. I'm like, there, you get exposed to Who else is in this bucket? We're Bitcoin. Who else is in this, like, weird family home equity? I

mean, yeah. And, like, the reinsure like, the re guys are great. Obviously, like, you have the the basis trades of the world. Like, you want to give TradFi exposure to crypto specific yields. So whether that's the basis trade, whether that's being able to get permissionless access to to loans on some sort of hardware, being able to make an axe an access an asset, like, stretch into different forms via crypto or do more specifically. These are all things that it's more than a tokenized equity play. Right?

Like, you wanna materially enhance the product by bringing it to DeFi. I think that's what should belong into this DeFi enhanced ETF. Yeah. DeFi enhanced whatever. Yes. May maybe stable stable dash vault one day. Uh-huh. There we go, Drew. Maybe. Yeah. Maybe.

We just have to ask this just because it's top of mind. We recently did connect. I think this was was this last Thursday? We had the Solsys team on. Mhmm. And they're doing some interesting work with Stretch. I think this was the first time, personally, at least for me, I've dove into a little bit of this model with MicroStrategy and what that looks like. How do you is it similar, different? What's same? What's different there? Seems like a very similar

approach, at least. How do you think about them? So we actually know them quite well, and they're a great team. Not too familiar. I believe it's USX. It's a stablecoin backed by So they're they're coming out with STRCUSX. Yeah. Okay. Yeah. I'm not exactly too sure what the model is nowadays, but I think that there's a very strategic advantage of having a stablecoin backed by TBuilds and that RWA backed by Stretch. We don't want to be managing the collateralization of a stablecoin.

We wanna be allowing people to get access to Stretch, and that's kind of why we've created this two token model that we've stuck to.

But, yeah, we have spoken to the Solsys team. They're great guys. And Yeah. Potentially, we could work together. Cool. Awesome. Yeah. It would be interesting to see it's interesting to see what's gonna happen.

And I when going back to the original question, and we can transition here, one of one of the things I was curious about I don't know if we did a good job of exposing this, but the application side of this, like, if you could seed today, if you could if you had a million dollar seed check to write into a a team that is building something on top of Saturn and, you know, everything was in place. The founder great. The vision was there. Like, they wanted to give you 20% of this company.

Like, what is that company, and what are they doing on top of Saturn?

My personal opinion, of course, is not financial advice, is the senior tranche provided by Strata. Essentially, how it works is the junior tranche takes first loss capital, basically, the NAV draw down to Stretch, but the senior tranche has 65% of fixed dividend from Stretch. So, you know, we saw today, strategy sold some Bitcoin, Bitcoin itself had a down day. But the senior is effectively protected in this case because the junior inherits all the the NAV drawdown.

So having exposure to this for an earned integration on a neobank or an exchange even in in today becomes very attractive, and you can earn very high yield, I mean, 8% with low volatility and basically having zero volatility to be specific with the junior tranche taking the first capital loss. So Strata is is really this great protocol that we're integrating with, but very excited to see how the senior tranche and junior tranche that we've created today actually gets plugged into more applications in DeFi.

You can also take this asset, loop it in Morpho, etcetera.

I continue to see all of these, like, bearish headlines around, oh my gosh, like, MicroStrategy is doing what whatever the hell they're doing. They're always doing something. And there's I don't know why journalists they they they always seem to be freaking out about what they're doing, which in some ways, I think is part of the magic of how they grow. That's another that's another point. But what what are people getting wrong about this sell off in your view?

Like, what is the market misunderstanding about strategy? Because from what I know about Michael Saylor, he's not on his heels right on this. Correct.

So if you look at the report previously from credit rating agencies, basically classified Bitcoin as negative capital. What strategy is doing here, in my opinion, is signaling to these credit agencies that they're actually willing to sell Bitcoin to preserve the peg and basically improve the the credit rating of Stretch. Now it's like, hey. Strategy said a couple years ago, don't sell Bitcoin, but Sailor's taken, in my opinion, very wise, is to not be dogmatic, but instead to be most accretive to the shareholders.

So this is the MSTR folks who are to optimize for Bitcoin yield and also maintaining the peg on stretch, which is being able to use cash, issue equity, and sell Bitcoin if needed to, again, be most accretive to shareholders, but also maintain stretch at a $100. That's it. Headlines like this. It's like Yeah. Just roasts

roast them. But you see this as a principled principled move that if you were a share shareholder, you would understand,

sounds like. I mean, yeah, I want strategy and stretch to get a better credit rating. I want it to be adopted by the major institutions. I want it to go into pension funds and power these saving vehicles across the world. The current rating is not very impressive, and traditional markets still see Bitcoin as negative capital. I want strategy to improve this rating, and this is just one step in the road.

It's very important that strategy shows the world, even if it does create a little bit of sell pressure today, that they are willing to maintain such a par and use the capital on its balance sheet to make sure that it becomes one of, if not the greatest credit instrument to ever exist. Cool.

I have a ton more questions about Bitcoin in the future of it, but I'm not gonna ask. Zach, do you have any final thoughts? No. Thanks for coming on. It's been great to dive into Saturn. So much to learn. Of course. Relate with the the word you used was being shot. Was it you're just shot? Or or with being in the Bitcoin community, it can feel like you're just exhausted in some some time. Yeah. So related, but we're still here, man. We're not going anywhere long road.

Something I do appreciate about people who found their way in because of Bitcoin. Typically, they have a ethos about the space that's pretty long term, and I like building with long term people. So I I've it's very rare to come across someone who's, like, fired up about the principles of Bitcoin that is, like, building for the wrong reasons or in it for the wrong reasons, so at least in my experience so far. Ellis, thanks for your time. We'll have you back on. Appreciate it. Thanks for having me.