Willy Woo Calls Out Strike’s Jack Mallers For Risky Lending Practices

Bitcoin analyst Willy Woo got into a spat with Strike founder and CEO Jack Mallers over customers’ assets being lent to third parties to boost profits.

In an X post, Woo pointed out that Bitcoin payments firm Strike’s new terms of service for its lending product allow it to rehypothecate customers’ funds. Rehypothecation is a practice where an institution reuses assets that have been pledged to it as collateral by clients, using those same assets as collateral for its own borrowing or financial activities.

Strike’s terms of service say the “Lender has relationships with one or more capital providers who provide funding to Lender in order to provide the loan to you.” The company said in May that user funds are held in segregated accounts by itself or its partners and never rehypothecated.

Woo said, “In Strike, re-hypothecation is absolutely happening. This means higher risk with no ability for customers to make an assessment on that risk due to the lack of disclosure.”

However, Woo did make clear that Strike is not engaging in recursive rehypothecation, a much more dangerous process in which customers’ assets are loaned and re-loaned several times.

That kind of arrangement hurt crypto badly, for example, when the Gemini exchange’s Gemini Earn product took customers’ assets and loaned them to Genesis, which in turn rehypothecated them to Alameda Research, “who then bought bags of shitcoins and got liquidated,” Woo said. “Each hop adds more risk, the trades are riskier, and also the entity can mishandle the collateral or steal it (FTX/Alameda did both).”

Mallers Fires Back

Mallers responded that Strike only works with “vetted capital partners” and that Woo’s claims were “disingenuous, and at times borderline false.”

He agreed to publicly disclose all capital partners, such as NYDIG, that Strike works with, and mentioned that Strike had already announced plans to roll out a proof of reserves product “imminently.”

Mallers also noted that Woo is an investor in a direct competitor of Strike, Bitcoin lender Debifi. “I assume that’s why you keep trying to tear us down,” Mallers said.

Woo responded that his investment in Debifi is a matter of public record and added, “I’m very interested in this lending space as it’s pivotal to value add for Bitcoiners and want it to be robust, free of 2022 BS. I’m pushing you to build a strong product.”

BlockTower Capital CIO Ari Paul jumped in on Woo’s side, saying, “Ultimately, the concern Willy is raising that you haven’t addressed is the counterparty risk. ‘Vetted’ firms go under routinely.”

Strike was founded in 2020, and last raised money in 2022 with an $80 million Series B round led by Bitcoin VC Ten31.

In April, Mallers founded a new public company to compete with Michael Saylor’s Strategy as a bitcoin treasury firm. He is the CEO of Twenty One Capital, which was launched with stablecoin issuer Tether and its sister exchange, Bitfinex, as investors, along with Japan’s SoftBank and a firm associated with Cantor Fitzgerald.