Tesseract unveils yield platform to help mid-size crypto firms compete with Binance and Coinbase

Tesseract has launched a platform to enable other crypto firms’ customers to earn yield on their holdings, as the Finnish lending firm branches out from its core institutional service into white labelling.

Tesseract co-founder and CEO Yichen Wu told The Block in an interview that the product — an API-based service called Tesseract Earn — went live in the past few months. The business has already signed up its first batch of customers for the white-label platform in Europe and Asia.

The Helsinki-based lender is targeting mid-sized crypto businesses — such as wallets and exchanges — that are competing with giants like Binance and Coinbase, but which often lack the resources to devise interest-bearing products on their own.

All of these companies are looking for “sticky” products to help retain their customers, according to Wu. “Yield products are a way to do it,” he said. “They will essentially be able to offer their clients a BlockFi, Celsius-esque product.”

Tesseract Earn will enable partners to offer interest-bearing products with a risk and return profile of their choosing. Tesseract will generate yield for end-users through three main avenues: borrowing and lending; market making and arbitrage-based strategies; and DeFi yield farming.

Wu described credit as “the unsexy part of crypto,” but added that it’s also one of the most difficult to crack.

“You have a lot of those retail-facing platforms that are out there, that in my personal opinion... are just like a semi-time bomb that is waiting to explode,” he said, pointing to the hedge fund-like activity that underpins such accounts and a lack of regulation as major concerns. Tesseract is supervised by the Finnish Financial Supervisory Authority.

Cash rich

Founded in December 2017, Tesseract has until now operated quietly as a B2B-only company focused on lending out deposits from institutions and sophisticated investors. Wu likened the business to Genesis, the US crypto trading heavyweight.

Its profile was boosted by a $25 million Series A fundraise led by Augmentum Fintech in June 2021. Half a dozen venture capital firms, including LeadBlock Partners, Coinbase Ventures and trading firm Wintermute, also participated in the raise.

Wu said that Tesseract was cash flow positive by the time the Series A funds came in, but chose to raise anyway — primarily to instil confidence in potential partners.

“When we started to deal with a lot of larger financial institutions, regulated entities… Their first line of reference point is: who has invested in you? Has any famous investor put a stamp on you, so we know you’re not a scam? Which is a silly thing, but it’s a strong signal to the market,” Wu explained.

Most of the $25 million is still sitting in the bank, he added.

Since the raise, Tesseract’s headcount has grown from 6 to around 40. Revenues and lending are also up substantially, with the firm’s outstanding loan book now in the hundreds of millions of dollars. Wu is hoping that the Earn platform — which he said takes aim at a “neglected market segment” — can help boost that number to a couple of billion dollars by year-end.