Post-Mortem: The STRC Drawdown, the apxUSD Price Movement, & What Comes Next

Over the past week, the market has witnessed Strategy’s preferred equity, STRC, trade 10% below its $100 par value, its largest ever drop in history. apxUSD, which is majority-backed by STRC preferred shares, traded as low as $0.90 on secondary markets before stabilizing at $0.95 while the protocol faced a wave of redemptions. 

The move for both assets comes off the back of bitcoin falling -30% over the prior month and nearly -20% the same week. Bitcoin’s intra-week decline ranks among the steepest ~8% of all weeks in bitcoin's ~15-year history, the 64th-largest of more than 770 weekly drawdowns on record. Comparable moves cluster almost exclusively around regime-defining events: the COVID crash, the 2021 China mining ban, and the 2022 LUNA and FTX collapses.

This was the most significant stress event the Apyx protocol has experienced, only 14 weeks since launch. It tested the project’s operational infrastructure, communication, reserve management, and the assumptions baked into protocol design. 

This post is an accounting of what happened, what went wrong, what was learned, and what will be changing. The foundation believes transparency is not just a value but a mechanism: the more clearly our users understand how this protocol operates under stress, the better positioned everyone is to make informed decisions. Every major protocol faces a defining stress test at some point in its lifecycle, and this was Apyx’s. But what matters now is the response.

What Happened

STRC, the variable-rate perpetual preferred share issued by Strategy, began declining from par alongside a broader bitcoin selloff. As bitcoin fell through key support levels, STRC followed, dropping from near par to $90.38 over the course of several days. The selloff was exacerbated by retail panic (STRC is estimated to be ~80% retail held), thinning liquidity, and derivative-driven dynamics in related markets.

Because Apyx's collateral basket is majority STRC, the decline compressed the protocol's overcollateralization buffer and put downward pressure on the market price of apxUSD. At its lowest point, apxUSD traded down to $0.90 as well, falling below net asset value (NAV). The protocol remained solvent throughout, meaning the value of the reserves continued to exceed the market value of the circulating apxUSD supply, but the market price deviated materially from the NAV. STRC includes a variable-rate dividend adjustment mechanism designed to pull the share price back toward par over time. Strategy also has multiple tools at its disposal, including running the common stock ATM, adjusting dividend frequency (a shareholder vote on bi-monthly payments is pending), and deploying bitcoin liquidity. Each prior STRC drawdown has resolved, though the timeline and path have varied.

What Went Wrong

We want to be direct about this. Several things did not go as they should have, and we owe the community a clear explanation of each.

1. Overnight Liquidity Was The Primary Driver of The Deepest Wicks

The most severe apxUSD price dislocations occurred while U.S. equity markets were closed. Crypto trades 24/7 while public equity does not. When STRC sold off into the market close and then apxUSD continued trading overnight, the protocol faced a structural problem: the protocol could not sell STRC (the market was closed) and could not confidently bid apxUSD (it is completely unknown where STRC would open the next morning). If the protocol had supported the peg at $0.95 overnight and STRC opened at $0.89, it would have burned cash defending a price that did not reflect reality.

This liquidity mismatch between TradFi and DeFi is fundamental to the product and will not disappear entirely. But it can be mitigated. The team has developed an overnight v1 liquidity system, along with arrangements with market makers who are willing to provide liquidity during off-hours. The protocol is also exploring the use of tokenized STRC (STRCx) to enable onchain sales outside of traditional market hours, which would allow the protocol to maintain proportional asset sales even when equity markets are closed. Overnight and weekends will always be a lower-liquidity time, mirroring the liquidity dynamics in the BTC spot market, e.g. CME gap, but the plan is to improve overnight liquidity dynamics relative to where they were.

2. The Transparency Dashboard Displayed an Incorrect NAV

During the drawdown, the transparency dashboard was displaying a higher NAV than reality. This was caused by a bug in the pricing feed that Apyx was using for STRCx (tokenized STRC). There was a variance between the admin dashboard the team was referencing internally and the public-facing calculation feed. The result was that the market was reacting to one set of numbers while the protocol was operating against a different, more accurate set.

Real-time transparency is a core focus of the protocol, and the data users relied on was wrong during the most critical period. The team is working to implement additional validation layers and automated alerting to ensure pricing feed discrepancies are caught before they reach the public dashboard. They are also evaluating supplementary transparency tools to provide redundancy.

Additionally, the Accountable dashboard currently groups Protocol Owned Liquidity (POL) and Inventory into the Cash & Equivalents bucket, which led multiple external analysts to misinterpret the collateral composition. The inventory balance (approximately $115M at the time) is both a liability and an asset, netting to zero. It can be burned at any time. This will be made available in the Accountable dashboard soon.

3. Communications Were Delayed or Inadequate

The project had not adequately prepared the community for how the protocol would behave in a stress scenario. The documentation described the peg stability model in general terms, but it was not explicit enough about what users should expect when STRC experiences a significant drawdown: that apxUSD can trade at a discount to NAV, and that this is the protocol functioning as designed rather than failing. During periods of heightened NAV volatility, such as those caused by preferred stock volatility, apxUSD may trade at widening premiums or discounts across markets as liquidity providers reduce or withdraw liquidity.

Additionally, the team did not regularly update users on how the market was moving and communicate as proactively as possible.

4. Operational Plumbing Was Not Ready For This Scale of Event

As has been outlined numerous times, the minting and redemption infrastructure is manual by design. The multi-sig process, the time delays, the daily caps: these exist to prevent inflation exploits and provide security guarantees that the project believes are non-negotiable. But the manual process also means that responding to fast-moving market events requires human coordination across multiple signers, time zones, and operational steps (selling STRC on a brokerage, wiring funds, converting to USDC, deploying to onchain liquidity pools). During this event, the number of steps and the pace required exceeded what the current operational setup could deliver smoothly. 

What Went Right

Apyx faced a number of speed bumps over the past week, but the protocol operated efficiently and effectively in a number of critical respects. Several design decisions proved their value under stress, and it is important to acknowledge what worked alongside what did not.

1. The Unlock Period Prevented a Bank Run

The 3 to 20 day redemption window with a redemption fee schedule that linearly declines from 3.5% to 0.1% for apyUSD did exactly what it was designed to do: it prevented a scenario where more participants would have attempted to exit simultaneously, forcing more STRC sales. Any protocol that creates bank-run incentives will eventually be bank-run. Apyx is specifically designed to avoid this, and during this event, the design held.

2. Proportional Redemptions Maintained Asset Composition

When the team processed redemptions, STRC was sold proportionally alongside cash deployments to avoid concentrating the remaining portfolio in a single asset. This is the opposite of what happens in many traditional fund liquidations, where early redeemers get the liquid assets and late holders are left with illiquid positions.

3. apyUSD Redemption Rate Did Not Decline

The one-way ratchet worked exactly as designed. Despite STRC falling 6%+, the apyUSD/apxUSD redemption rate did not decrease because the LinearVestV0 contract only ingests realized dividends and does not reference STRC's market price. This is the core architectural differentiator of the protocol, and it performed as intended under stress.

3. The apyUSD/apxUSD Morpho Market Had Zero Liquidations from STRC Price Movement

Because the oracle for this market is based on the redemption rate (not STRC spot or DEX price), the STRC drawdown did not trigger any liquidations on this specific market. Users who had looped on the apyUSD/apxUSD market were structurally insulated, exactly as described in the documentation.

4. No Morpho Markets Experienced Bad Debt

Liquidations on Morpho were orderly and timely, protecting the lenders in these markets. Given that this was the single largest drawdown in STRC history, this is a great proof point for future lenders in these markets. Pendle PT and YT positions continued to function as designed throughout the event. PT holders approaching maturity will receive apxUSD at a 1:1 ratio regardless of temporary secondary market discounts, and YT positions are priced on notional, not market value. Royco tranche holders were similarly unaffected at the protocol level.

Addressing Other Concerns

A few additional topics generated significant discussion throughout the stress event and deserve direct clarification. The following sections address the most common questions, misconceptions, and concerns raised by the community.

1. Redemption Access

The documentation describes minting and redeeming as available to eligible, whitelisted participants in permitted jurisdictions. In practice, when users asked about this process in community channels, the team communicated more restrictive criteria than what the program actually requires. This created the impression that redemption was inaccessible to most market participants.

We should have been clearer. Over the past few weeks, a number of new whitelisted redeemers have been onboarded across a range of sizes, and more will likely be onboarded over the coming weeks. The goal is to have enough whitelisted redeemers with sufficient aggregate capacity to absorb redemption demand at scale during stress, without relying solely on the protocol's process. We are also working to automate portions of the minting and redemption pipeline to reduce the number of manual steps required. 

2. Why Hasn't The Arb Closed the Discount?

Multiple users asked: if the protocol is solvent and whitelisted participants can redeem at NAV, why did the discount persist? The answer is that whitelisted participants could not actually redeem at NAV in a timely manner at scale. The mint and redeem process is manual, KYC-gated, and involves multiple operational steps including selling preferred stock through brokerage accounts, processing wire transfers, converting to USDC, and deploying onchain. At a 1 to 2% discount to NAV, the margin is thin enough that the operational cost of executing the arb makes it difficult to profit. During the deepest overnight wicks, the process was further constrained by the inability to sell preferred stock while equity markets were closed.

This is not a sign that redemptions have been paused or that the backing is insufficient. It reflects the real-world friction of bridging TradFi settlement and DeFi liquidity. As more whitelisted redeemers are onboarded, overnight hedging infrastructure is deployed, and the operational steps involved in minting/redeeming are automated, this friction band will narrow.

3. Oracle Update Delay

When Apyx launched, the project was working on an agreement for a Chainlink managed oracle, but there was demand for lending markets, so the protocol launched its own oracle while finishing the launch with Chainlink. This resulted in two oracle setups. The specifics of each configuration will be described further in the documentation.

Some of the Morpho markets used the older self-managed oracle system. The oracle was intended to be updated based on apxUSD NAV, but as apxUSD moved away from $1, the oracles were not updated as quickly as they should have been due to the inaccurate NAV feed.

The v1 oracle is upgradeable and will be changed to use the live Chainlink price feed. More recent markets are already using the Chainlink feed.

4. "Apyx Is Levered STRC"

Apyx is not levered STRC and was intended since inception to be de-levered exposure to digital credit preferred stock like STRC. The protocol holds preferred shares alongside treasuries, cash equivalents, and other liquid assets. There is no recursive looping at the protocol level, and no mechanism that amplifies preferred stock exposure beyond the underlying holdings. When STRC drops 5%, the protocol's collateral value drops less than 5% because not all of the reserves are in STRC.

Users can take on leverage individually through Morpho or Pendle, but that is user-level position risk, not protocol-level leverage. Comparing Apyx to algorithmic stablecoins, which relied on reflexive token mechanics with no exogenous backing, is not accurate. apxUSD is backed by real, audited, income-generating assets. Over time, the basket backing apxUSD will diversify further as additional digital credit instruments prove themselves. 

5. Wallet Affiliation

Some users are evaluating which wallets are associated with the project. Apyx has a policy of not commenting on wallet addresses to third parties because of a focus on operational security and the intention to prevent counter-trading the project.

The individuals, entities, and partners participating in fueling the success of Apyx consist of crypto veterans going back to the early days of crypto, who operate across the industry in a number of capacities with their personal and other-entity capital, all of whom value personal privacy and safety. 

Current and prospective users can rest assured that the assets backing the protocol exist and are held on the balance sheet. Consider that Accountable runs data-fetching code inside a hardware secure enclave that pulls balance data directly from the project’s accounts including banks, custodians, exchanges, and onchain wallets. Inside the enclave it builds a Merkle Sum Tree, then generates a zero-knowledge SNARK. It proves that data fetched from the Apyx-signed source list is non-negative and the root sum equals the total balances. The enclave publishes the total, the Merkle root, the ZK proof, and a hardware attestation (proving the audited program ran unmodified). Anyone can verify the proof without ever seeing which addresses are in the set or how balances are distributed. The privacy comes from the enclave hiding the inputs while the ZK proof and attestation make the output cryptographically auditable. 

Improved reserve transparency, including more detailed breakdowns on the Accountable dashboard, is one of the concrete changes outlined in this post-mortem. Partnering with Accountable lets Apyx maintain wallet-level confidentiality and operational security while still giving market participants continuous, mathematically verifiable proof of the reserves.

6. Why Was Weekend Liquidity Pulled?

Off-market trading hours in the US, e.g. weekends and overnight, present a unique problem for any project with TradFi assets in their asset backing. This liquidity mismatch becomes an acute problem during periods of hyper volatility. To protect the project, protocol-owned liquidity was withdrawn during the Friday overnight period.

Overnight, the project developed a simplified v1 hedging system that would allow us to redeploy measured amounts of protocol-owned liquidity over the weekend. Going forward, we will further develop this system to increase confidence in providing liquidity while markets are closed. The long term solution here is just to have highly liquid, 24/7 onchain equities markets; however, this does not exist today.

What Is Changing

Lessons without action are worthless. Here is what is being implemented to make the protocol even stronger going forward.

1. Overnight Liquidity Infrastructure

The team is improving internal systems, building relationships with additional market makers who can support overnight liquidity, and developing onchain mechanisms (including tokenized preferred stock sales) to enable proportional reserve management outside of U.S. market hours.

2. Accountable Dashboard Improvements

The team is working with Accountable to separate Inventory and Protocol Owned Liquidity from Cash & Equivalents, implement automated pricing feed validation with alerting, and add redundant data sources to prevent single-feed failures.

3. Full Reserve Transparency

All reserve deployment strategies will be disclosed in the documentation and reflected on the dashboard. The project will publish a reserve management policy that describes how reserve assets are deployed, the risk parameters governing those deployments, and how they are monitored.

4. Faster Communication Protocols

The project is implementing a commitment to publish a public status update within two hours of any event that causes apxUSD to trade more than 2% below NAV. This update will include an assessment of the situation, the current collateral ratio, and the planned response. Silence during a crisis is indistinguishable from inaction, and that mistake will not be repeated.

5. Complete Pre-Written Stress Playbooks

A detailed action plan is being developed for multiple stress scenarios, with pre-approved decision trees that do not require real-time decision making. These will cover preferred stock drawdowns of 5%, 10%, and 20%+, bitcoin flash crashes, and combined scenarios. Each playbook will specify communication timelines, redemption pacing, preferred stock sales targets, and liquidity deployment parameters.

6. Morpho Liquidity Stabilization

The team is exploring protocol-owned lending positions and improved coordination with vault curators to reduce the cascading effects of lender withdrawals during stress events. During the stress period last week, none of the Morpho markets incurred any bad debt because liquidations were performed in an orderly manner. However, the lack of lending into these markets has created extra stress on the system.

In an effort to provide liquidity for users in leveraged positions, to reduce interest rates, and to allow users to manage their positions with less risk, the protocol has started lending USDC into Morpho. Protocol lending will stay in line with the previously published strategy, and be limited to 15% of reserves. To reduce risk, the protocol will lend into markets collateralized by Apyx assets because of the Protocol’s unique ability to take over positions as a last resort liquidator and reduce the risk of incurring bad debt. Yield generated from lending will contribute to overcollateralization and increasing yield rates on apyUSD. This bucket will have the added benefit of allowing us to modestly reduce the reliance on volatile preferred stock for yield generation and have greater access to capital overnight and on weekends.

Closing Thoughts

Every major stablecoin protocol eventually faces a defining stress event. USDC depegged to $0.87 during the Silicon Valley Bank collapse. DAI survived Black Thursday with mass liquidations. FRAX navigated the UST contagion. USDT survived the Crypto Capital/Bitfinex issue in 2018. These protocols emerged stronger not because the stress events were pleasant, but because they exposed weaknesses, forced improvements, and demonstrated resilience.

Through this stress test, the protocol remained solvent throughout, the core yield architecture performed exactly as designed, the anti-bank-run mechanisms held, and where we fell short, in communication, operational speed, overnight liquidity, and transparency, we are making concrete changes.

But we want to be clear about something: none of this changes the thesis. Digital credit is being born. Bitcoin and other major crypto assets are giving rise to an entirely new class of credit instruments, with STRC growing to $10.5B in under a year being just the opening act. The market for bitcoin-backed yield products could exceed $100B before the end of the decade. Most of the world remains yield-impoverished, locked out of savings products that can beat inflation, with no access to the instruments that are being built right now. That problem is massive, it is global, and it is not going away.

Apyx exists to solve it. We are building the platform that takes digital credit, turns it into simple, transparent, onchain yield, and makes it accessible to anyone, anywhere. That mission did not change this week. If anything, the stress test sharpened our conviction that this infrastructure needs to exist and needs to be built correctly. The collateral base of the future is not sovereign debt. It is bitcoin, digital assets, and the credit instruments built on top of them. Apyx is positioning to be the interface between that new collateral base and the billions of people who need access to real yield.

A big thank you to every user who stayed through the volatility, asked hard questions, and pushed us to get better. That is exactly what this community should do, and we welcome it.

For questions, reach out in Discord or on Twitter/X.