Willy Woo, a well-known Bitcoin analyst, has raised concerns about Strike’s new terms of service, which has caused a stir in the crypto community. He pointed out possible risks related to how Bitcoin is stored.
Strike’s new terms allow the company to do only one level of rehypothecation. This means that customer Bitcoin collateral can be moved to third-party capital providers like NYDIG. This process lets Strike turn Bitcoin into US dollars and lend it out, making money through interest spreads. This is a common practice in traditional finance, but it adds a lot of risk to the crypto ecosystem, especially when users don’t know where their assets are going or how they are being managed.
Regarding @Strike's latest terms of service and @jackmallers' promise to not re-hypothecate… here's what the terms of service means to Strike users:
— Willy Woo (@woonomic) June 6, 2025
– re-hypothecation means sending customer collateral to another party in order to make money off it. Each time this happens the… pic.twitter.com/aKOBqhH6TT
Woo says that even though Strike limits recursive re-hypothecation, stopping third parties from lending the collateral again, the first handoff still has weaknesses. The most important thing is that Strike hasn’t told users who the third parties are that are handling their Bitcoin or what their risk profiles are. Due to this lack of transparency, customers are unable to conduct due diligence or assess the financial stability and operational efficiency of these businesses. These information gaps heighten the likelihood of mishaps or losses, mirroring the industry’s past experiences.
What we learned from previous crypto crashes
Woo compares this to the well-known failure of several big companies in 2022, when unchecked rehypothecation caused big losses. For example, Gemini had taken money from customers and given it to Genesis, which then gave it to Alameda Research. Alameda then used the money to make risky trades and ended up losing a lot of money. Every time you rehypothecate, you take on more risk. Woo says that even one rehypothecation can make things less secure, especially if users don’t know where their assets are being held. Strike’s policy blocks multiple levels.
In traditional finance, regulated custodians or banks usually hold customer assets. These institutions work under strict legal frameworks that are meant to keep client money safe. These organizations make things clear, hold people accountable, and give people a way to go to court if they need to, which lowers the risk of asset misuse. Woo wants the crypto industry to adopt similar standards. He suggests using multi-signature contracts that involve borrowers, lending platforms, and capital providers to make things safer and more trustworthy. These kinds of frameworks would make sure that no one person can control or steal a customer’s Bitcoin on their own. Such an approach would bring crypto custody practices in line with established financial norms and boost investor confidence.
Community Response and the Need for Openness
People in the crypto community are worried and are asking for more openness. Woo’s analysis is a timely reminder that users’ Bitcoin holdings are still at risk of the same kinds of problems that led to the failure of companies like FTX and Genesis if there isn’t clear communication and legal protections in place.
Strike CEO Jack Mallers responded to Woo’s concerns on X (formerly Twitter), saying, “If you really cared about our users, risk, or business, you’d get in touch directly.” I have open DMs. “I’d be happy to explain.”
Woo, on the other hand, says that the lack of openness in Strike’s custody practices is a big problem that needs to be talked about in public to keep users’ trust and the crypto ecosystem’s integrity.
Strike’s new terms make Bitcoin custody more risky by allowing re-hypothecation, which shows the conflict between new ways of doing business and keeping users’ assets safe. Willy Woo’s expert opinion makes it clear that the crypto industry needs to be more open and have stronger custody frameworks right away. Platforms can better protect user funds and build trust in the changing digital asset landscape by following institutional standards and making sure communication is clear.
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