How Wall Street’s ‘best-kept secret’ now fuels high cryptocurrency yields (ft. Alex Mashinski)
One of Wall Street’s least risky businesses, securities lending, is now also being used by crypto lending companies to provide high yields for hodlers — or long-term crypto holders. But what are the risks to crypto holders? “If you ask any Wall Street veteran: ‘What is the safest business on Wall Street?’ They’re not going to tell you banking, they’re not going to tell you trading, they’re going to tell you sec lending,” Celsius Network CEO Alex Mashinsky told Forkast.News in a video interview. “That is also the safest business in crypto.” Securities lending is the loaning of assets such as shares to firms and institutions. Experts agree that the practice is less risky than before, but it’s not entirely risk-free in the traditional finance world. For crypto finance companies like Celsius Network, a crypto lending platform, the loaned assets are cryptocurrencies. Celsius Network’s securities lending strategy has allowed the platform to provide high-yielding interest rates for investors that choose to deposit their assets into Celsius. It currently offers 6.2% for Bitcoin and 8.88% for stablecoins, at press time. “When an institutional exchange borrows Bitcoin from us, instead of sec lending, they do digital asset lending and they pay us interest,” Mashinsky said. “No one on Wall Street has ever paid this money, the sec lending income, to their customers — that’s the best-kept secret.” With Bitcoin’s boom, more services have popped up around the globe to present investors with a variety of options for their chosen interest-bearing crypto accounts. But like many other aspects of the crypto industry, the new kinds of services have drawn the attention of regulators. Recently, crypto lending platform BlockFi which also operates trading services and interest-bearing accounts, has the New Jersey Bureau of Securities breathing down its neck, with local authorities claiming BlockFi’s Interest Accounts offers unregistered securities to its users. Texas and Alabama have made similar moves against BlockFi. According to Mashinsky, the sales aspect could be a sensitive zone for regulators. Celsius users must purchase cryptocurrencies outside of the network, putting Celsius out of regulatory cross hairs — at least for now. “Even though some may look at Celsius and BlockFi as competitors, they’re really not competing with us on yield,” Mashinski said. “Our job is just to earn that yield for you.” But with the growth of the company, which Mashinsky says added US$300 million net assets in the same week Bitcoin recently dipped below the key US$30,000 mark, the company has opted to move its headquarters and main operations out of the United Kingdom to the United States, citing increasing regulatory uncertainty in the U.K. and the better business environment across the Atlantic. “For some of the things we do, we may benefit from being based in the United States,” Mashinsky said. “If we choose to go public or if we choose to do some other financial activities, there’s a big disconnect in valuation.” Watch Mashinksy’s interview with Forkast.News Editor-in-Chief Angie Lau to find out the safety and risks of crypto securities lending, Celsius’ plans for public listing, why he believes Bitcoin will reach US$160,000 this year, and more.