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: - re-hypothecation means sending customer collateral to another party in order to make money off it. Each time this happens the risks get higher. e.g. Strike sends customer collateral to say NYDIG to borrow USD then pass the USD to Strike borrowers while taking a cut in the rate. - a single re-hypothecation is allowed under the terms, this is because capital provider (say NYDIG) needs to hold the collateral in order for it to be de-risked for them. - the capital provider (say NYDIG) cannot further re-hypothecate. For example in 2022 Gemini re-hypothecated customer funds to Genesis who then re-hypothecated to Alemeda who then bought bags of shitcoins and got liquidated. Each hop adds more risk, the trades are riskier and also the entity can mishandle the collateral or steal it (FTX/Alameda did both). - under the terms there is no need to notify to the borrower who has their collateral. This lack of disclosure adds significant risk to the borrower as they can't assess risk. For example if Strike decided to onboard "Alameda 2" as a capital provider and send them your BTC, they don't need to tell you. - overall this is a very weak custody arrangement. In TradFi, tri-party custody is used. A regulated third party custodian holds customer collateral, and legal agreements determine who owns it and what can be done with it under defined events, this prevents the capital provider or Strike from running away with the collateral. - In BTC we also can do tri-party with a simple multi-sig contract between the borrower, the lending platform, and the capital provider SUMMARY 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. Recursive re-hypothecation adding further risk however is prevented. Institutional tri-party custody is recommended to mitigate the risks here or use BTC native multi-sig.