Jane Street Uses Decentralized Finance to Borrow Crypto

(Bloomberg) -- Wall Street trading powerhouse Jane Street, known for its dominance in markets such as exchange-traded funds and corporate bonds, is turning to decentralized finance to borrow crypto.

The New York-based company is going to initially borrow up to $25 million in USDC, a stablecoin pegged to the U.S. dollar, with plans to scale up to $50 million. It will borrow from crypto firm BlockTower Capital and will do so through Clearpool, a DeFi marketplace where institutions can get uncollateralized liquidity from a network of lenders. Launched on the Ethereum blockchain in March, Clearpool is backed by global investors including Sequoia Capital and Arrington Capital.

This is the first time Jane Street is using decentralized finance to borrow crypto, a representative confirmed. They declined to comment on why the firm is doing so and how it'll use the funds. They also declined to comment on whether the firm has borrowed crypto before.

“This is the first traditional financial institution on Wall Street that has made this step -- this almost opens the floodgates,” Robert Alcorn, chief executive officer of Clearpool, said in an interview. “Others are going to go from watching this space to considering it seriously.”

Clearpool has spoken with dozens of traditional Wall Street companies and has “high single digits of traditional financial institutions that are almost ready to go” and start using the service, he added.

Crypto-focused firms such as Alameda Research already use similar services by Maple Finance and TrueFi to borrow or lend capital. These services allow users to adhere to know-your-customer and anti-money-laundering requirements, unlike most other DeFi marketplaces. Users may also be able to borrow at a lower rate with these services.

Lenders in such DeFi protocols typically earn 15% to 25% in annualized interest, Sanat Rao, a general partner at BlockTower Capital. He declined to cite the rate BlockTower will receive.

“One of the new things we started doing is what we call real-world lending,” Rao said in an interview. “We are basically taking crypto capital and lending it to someone who is not directly in the crypto space. It's a brand-new use case.”

Clearpool offers lenders yields which are enhanced through a rewards mechanism and paid in the protocol's native token CPOOL. Recipients can stake their tokens, which effectively puts them into special wallets, to earn additional yields.

This is not the first time Jane Street is showing interest in DeFi. The firm backed Bastion, a lending project, in March. And last year, it began contributing market data to Pyth Network, a provider of verifiable data for DeFi.

The company sees crypto trading as a growth area. It's been executing crypto trades since 2017 and is one of the market makers powering Robinhood Markets Inc. customers' free crypto trades.