Bitcoin Loans Are Back, But Rehypothecation Still Lingers
Bitcoin lenders are implementing tighter controls and improved risk management to restore trust after the failures of Celsius and BlockFi. Previous collapses were due to poor risk management rather than inherent flaws in crypto-backed loans. Current platforms are adopting overcollateralization and stricter liquidation thresholds, enhancing transparency and reducing counterparty risk. The lending market now features more mature investors, focusing on liquidity access and diversification rather than yield farming. Despite improvements, Bitcoin's volatility poses risks, as sudden price drops can lead to mass liquidations. Modern lending models are safer but not infallible, with ongoing concerns about rehypothecation practices. Bitcoin-backed loans are gaining traction again, with an estimated $13.51 billion in open CeFi borrows as of early 2025, but the reliance on a volatile asset remains a core risk. New financial use cases for Bitcoin loans are emerging, though traditional systems introduce additional risks. The sector is cautiously reviving, emphasizing tighter controls and a better understanding of risks.
