Convertible Notes
Hybrid debt securities convertible into equity, used by companies like Strategy to fund Bitcoin purchases at low interest.
What is Convertible Notes?
Convertible notes are debt instruments that can be converted into a predetermined number of common shares at the holder’s option, combining fixed-income features with equity upside. In corporate finance, they allow issuers to raise capital with lower interest rates due to the embedded call option value, attractive for high-volatility stocks. Strategy has issued over $8 billion in such notes maturing 2028-2032, with coupons from 0% to 2.25%, all in-the-money as of March 2025 at strikes $149.80-$672.40.
These notes enable deferred dilution, with Strategy using proceeds for Bitcoin, achieving low costs via volatility-harvesting arbitrage. Risks include option erosion if volatility drops, with average -13% price decline from 85% to 50% IV.
Related Terms
Same Activity Same Risk Same Regulation (Hong Kong)
Hong Kong's regulatory principle ensuring uniform oversight for financial activities with equivalent risks, applied to stablecoin issuance under the Stablecoins Ordinance effective August 2025.
Solana Smart Contract / Onchain Program
Executable code deployed on the Solana blockchain that processes transaction instructions to read from and modify controlled accounts, equivalent to smart contracts on other blockchains.
Stablecoin
Stablecoin is designed to maintain stable value by pegging to fiat currencies, commodities, or algorithms to minimize volatility.
Sell Walls
Large accumulations of sell orders at a specific price level, forming a barrier against upward price movement.
Solana Rent
A fee mechanism on the Solana blockchain where accounts and programs pay to store data on-chain, with insufficient balances risking garbage collection.
Reputation System
A mechanism that rewards prediction market participants with non-financial incentives, like tokens, for accurate forecasts.