When Kevin O’Leary was first exposed to cryptocurrency, he was not just bearish; he was an outright opponent of the asset class. Many crypto blogs would take exception to Mr. Wonderful’s not-so-wonderful takes on digital currencies. Around this time, the multi-millionaire called Bitcoin (CCC:BTC-USD) “worthless” and “garbage.”
Now, just a few years later, he’s one of the most vocal crypto bulls on Wall Street. Through decentralized finance, or DeFi, the entrepreneur and Shark Tank star says he was able to earn better yields on his investments than through the traditional market. And with this revelation in mind, he aims to bring the DeFi sector to the masses in an unprecedented way.
In an exclusive interview with InvestorPlace, O’Leary chronicles his dive into DeFi, and how his newest investment seeks to clean up a financial system that is as challenging and unregulated as it is lucrative.
Kevin O’Leary Turned Around on Crypto Thanks to Low Federal Interest Rates
DeFi is a seemingly lawless sector. In Mr. Wonderful’s words: “It’s the wild west out there. There’s no infrastructure.” He also mentions that he has no interest in trying to skirt compliance in some sort of gray area. “I’m not some investing cowboy who wants to get out there and test the outer limits. I’m not interested in doing that because I already have a large portfolio of compliant investments.”
The investing wiz says that he has no interest in doing anything outside of the book. What, then, caused him to turn around and finally test the waters of this cutting-edge industry?
Well, according to O’Leary, when it was time to make an investment, he couldn’t help but look at the returns investors were making on crypto staking.
“[O’Leary Ventures] made a reallocation within our portfolio to reduce our exposure to commercial real estate. We started looking for alternatives to deploy that cash. And if you look at inflation, it’s at about 2.1%; cash is now yielding 18 to 20 basis points — you’re actually losing money holding cash. You want to find a way to make between 3% and 4% just to hold the line against inflation. That’s when I really became interested in DeFi, because I started using DAI (CCC:DAI-USD) and also USDC (CCC:USDC-USD) as stablecoins to write [lending] contracts.”
Institutional Concerns About DeFi: Regulation, Regulation, Regulation
It wasn’t easy for O’Leary to break onto the DeFi scene; he says there are a lot of internal checks and balances in place at O’Leary Ventures — and at venture capital firms across the country, for that matter — that cause hesitation around crypto investments. The fact that cryptocurrencies are so unregulated caused quite a headache.
“The minute I went to see [our compliance department] about this, they said ‘No, we’re not touching this.’ It’s because there’s no infrastructure,” he says. “Let’s say you’re running a billion-dollar mandate, and you decide to put 10% into crypto. You don’t download a phone app to do that — you can’t put $100 million to work on your iPhone. You have to have a compliant structure that links to your accounting system, your mark-to-market.”
Just as Kevin O’Leary says, these internal bodies are afraid of the unregulated “wild west.” There are so many institutions who are still hesitant to get into DeFi, even upon seeing the large returns that can be earned from staking when compared to traditional investments.
So Mr. Wonderful did things his own way. His firm built a rigorously detailed, fully compliant investment where they could loan crypto for high returns. Since O’Leary blazed this trail, easier options have arrived for institutions. Federally chartered crypto banks like Anchorage Digital are popping up to help firms manage their crypto portfolios and to educate them on the different facets of DeFi at the same time.
This lack of infrastructure is only one side of the problem that keeps institutions and individuals alike from investing in DeFi. Indeed, why would either party want to invest in something that’s unregulated? But there’s another problem as well: DeFi can be incredibly hard to understand. There is so much jargon, technical know-how, and types of tokens and other projects for one to invest in. And it’s all spread across hundreds — if not thousands — of wallets, exchanges and applications.
Kevin O’Leary Looks to Be a Sheriff for the Wild West of DeFi
Unsurprisingly, O’Leary was less concerned with the technical know-how than he was with making a compliant investment within the space. But, soon after he began investing in DeFi, he realized that he had a certain privilege of knowledge; there are millions of people out there who can’t invest in DeFi because they don’t “get it.” And these people don’t have access to firms like Anchorage, who primarily focus on institutional clients.
When thinking about the millions who simply don’t understand DeFi, O’Leary’s own daughter came to his mind:
“My daughter calls me up and says, ‘Hey Dad, I have nothing in my savings account. Why don’t I do the same [DeFi investing] that you’re doing?’ I said, ‘Savannah, you’ll never figure this out. Setting this up is impossible.’ And so that’s when it hit me: We’ve got to get an app that does this for the 100 million people that are just like her.”
It seems Mr. Wonderful found just that app. And once he found it in the form of WonderFi, he quickly became one of the largest contributors to its first funding round. WonderFi seeks to both solve issues around DeFi compliance as well as to educate investors about all of the gears that keep the DeFi machine turning.
WonderFi’s Goal of Streamlining DeFi Investing Draws Support From Kevin O’Leary
The company is developing an application that aggregates DeFi applications into one convenient place. Where before, an investor would have to use multiple different wallets, multiple exchanges and multiple applications, they can now use all of these tools under one roof. They can also keep track of their investing goals and ensure that they invest within the compliance boundaries of their jurisdiction.
“Any time I can make something more efficient, more productive and cost less, I’m all there,” he says of WonderFi. With this in mind, the entrepreneur’s role with WonderFi goes beyond his service as a major financier. The company hopes O’Leary’s large following can bring the product to a broad audience, allowing as many people as possible to expose themselves to DeFi. Originally named DeFi Ventures, the company rebranded to WonderFi to begin associating with O’Leary’s “Mr. Wonderful” image.
“I’m basically ripping off Richard Branson here, and I’m being totally transparent about it. He does Virgin, I do Wonder,” O’Leary says. “My role here is to spread the word, to tell my story, to use my social media to acquire customers and potentially, investors.”
Not Just a Sponsor: How Mr. Wonderful Is Entrenching Himself in the DeFi Space
That’s not to say that Kevin O’Leary is just a figurehead to draw attention. It’s quite obvious that he’s passionate about decentralized finance. And, he truly believes WonderFi is a tool that can spur a revolution and democratize finance.
“I’m not the kind of guy that just puts my name on something, I eat my own cookie,” he says. “When you see my name associated with WonderFi, it’s because I’m an investor and I’m going to be a user.”
And Mr. Wonderful has no plans to stop blazing new trails in the Wild West of DeFi, either. He believes the new sector is less of a fad and more of a paradigm shift. “From being a crypto skeptic in 2017 to being a flag-bearer today, I’m very much interested in pushing [DeFi] forward and making it bigger. And I think it will be.”