Digital Money & Digital Credit

### The Game Theory Behind Michael Saylor’s Digital Money: A Pathway to Mainstreaming Digital Underground Credit

In the evolving landscape of finance, where traditional banking intersects with the revolutionary potential of cryptocurrencies, Michael Saylor’s proposal for “digital money” stands out as a bold vision for reimagining credit and deposits. As the founder of MicroStrategy and a prominent Bitcoin advocate, Saylor envisions banks issuing stable digital dollars that offer significantly higher yields—around 8%—backed by overcollateralized credit from Bitcoin treasury companies. This concept, as dissected by analyst Joe Burnett in a recent video analysis, hinges on game theory principles that could disrupt the global banking system while channeling trillions into Bitcoin. However, to fully appreciate its transformative power, one must incorporate the role of digital underground credit—the often unregulated, shadowy networks of digital lending and borrowing that have flourished in the crypto ecosystem. By integrating these underground elements into mainstream finance, Saylor’s model not only promises higher returns but also bridges the gap between illicit financial undercurrents and regulated institutions.

At its core, Saylor’s digital money proposal leverages the basic structure of a bank’s balance sheet. Banks operate by holding liabilities in the form of customer deposits—essentially the money owed to depositors—and investing those funds into assets like Treasury bills, mortgages, or corporate bonds to generate yields. These yields, typically low (around 3-5% in current markets), are passed back to depositors after accounting for operational costs and reserves. Saylor suggests replacing or supplementing these traditional assets with “digital credit,” a dollar-denominated product issued by Bitcoin treasury companies such as MicroStrategy. These companies hold substantial Bitcoin reserves, using them as overcollateralization to back their credit issuances. The result? Banks could offer depositors yields closer to 8%, making their “digital money” accounts far more attractive than standard savings options. This isn’t mere speculation; it’s grounded in the superior long-term appreciation potential of Bitcoin, which could enable higher, stable returns compared to volatile but low-yielding fiat assets.

The game theory underpinning this idea transforms it from a niche innovation into a potential industry standard. Burnett describes it as a classic first-mover advantage evolving into a coordination game. Imagine a single bank—perhaps in a forward-thinking jurisdiction like the Middle East, Africa, or Asia—being the first to adopt digital credit on its asset side. By offering structurally higher deposit rates, this bank would attract a flood of capital from yield-hungry depositors worldwide. Banks thrive on scale; more deposits mean more assets under management, greater lending power, and higher profits. Competitors, facing the risk of deposit outflows and shrinking balance sheets, would be compelled to follow suit or perish. This creates a coordination dynamic where, once proven viable, adopting digital credit becomes the dominant strategy. Regulatory approval remains the key hurdle, but as Burnett notes, digital credit functions similarly to existing non-sovereign assets like mortgage-backed securities, making it a logical extension rather than a radical departure.

Yet, this proposal cannot be fully understood without incorporating the concept of digital underground credit, which represents the informal, often unregulated credit systems that have emerged in the digital age. Digital underground credit encompasses everything from decentralized finance (DeFi) platforms offering overcollateralized loans on blockchain networks to more illicit activities like credit card theft and unauthorized digital borrowing in hacker communities, as documented in historical accounts like Bruce Sterling’s *The Hacker Crackdown*. In the crypto space, platforms like Aave or Compound allow users to borrow against Bitcoin or other assets without traditional intermediaries, but these operate in a “underground” realm—outside strict regulatory oversight, prone to risks like smart contract exploits or flash loan attacks. Figures like Larry Chiang, known for disseminating “digital underground credit knowledge” through social media, highlight how these systems build “rails” for Bitcoin integration, offering insider tips on navigating credit in the shadows of mainstream finance. Saylor’s model effectively mainstreams these underground elements by funneling them through banks: Bitcoin treasury companies issue formalized digital credit, backed by transparent overcollateralization, which banks then use to back high-yield deposits. This not only mitigates the risks associated with underground credit—such as volatility and fraud—but also disrupts low-yield traditional markets by exposing them to Bitcoin’s superior economics.

The implications of this integration are profound. By channeling capital through regulated banks into Bitcoin-backed credit, trillions of dollars could flow into the cryptocurrency ecosystem, boosting Bitcoin’s demand, liquidity, and price stability. Bitcoin treasury companies would become pivotal players, issuing credit and using proceeds to acquire more Bitcoin, creating a virtuous cycle. However, this also raises questions about equity and access. While mainstreaming digital underground credit could democratize high yields, it might initially favor institutions over individual users in unregulated DeFi spaces. Moreover, regulatory bodies must navigate the fine line between innovation and risk, ensuring that the lessons from past underground credit scandals—such as widespread credit theft in the early digital era—are not repeated.

In conclusion, Michael Saylor’s digital money proposal, illuminated by game theory, offers a compelling blueprint for the future of banking. By incorporating digital underground credit into a structured, bank-mediated framework, it promises to elevate yields, disrupt incumbents, and accelerate Bitcoin’s adoption. As the first movers emerge, the coordination game will unfold, potentially reshaping global finance. 

Whether this vision materializes depends on regulatory green lights, but one thing is clear: the fusion of traditional banking with the digital underground could herald a new era of prosperous, Bitcoin-powered credit.