Glossary / Rehypothecation
Rehypothecation
Rehypothecation is when a lender uses your pledged Bitcoin as collateral for their own borrowing. Understand the custodial risk before choosing a Bitcoin loan lender.
Rehypothecation occurs when a lender takes your pledged Bitcoin and uses it as collateral for their own borrowing or investment activities. You still have a loan against it, but your BTC is now serving two purposes at once.
Why it matters for Bitcoin borrowers
If the lender becomes insolvent while your Bitcoin is rehypothecated, your BTC may be tied up in bankruptcy proceedings — even if you haven't defaulted on your loan. This is what happened to borrowers on Celsius and BlockFi when those platforms collapsed in 2022.
How to identify rehypothecation risk
Ask whether your Bitcoin is held in a segregated account, at a qualified third-party custodian, or whether the lender has disclosed their right to rehypothecate in their loan agreement. Lenders that don't rehypothecate typically advertise this prominently.
Lenders that do not rehypothecate
Arch Lending and Unchained hold collateral in collaborative multisig arrangements where the lender cannot unilaterally move Bitcoin without the borrower's key. This structure makes rehypothecation structurally impossible. Our comparison table includes a Rehyp column showing each lender's policy.