Glossary
Rehypothecation
The practice of a platform reusing customer-deposited assets as collateral for its own borrowing, a hidden leverage risk behind several CeFi lending collapses.
Rehypothecation is when a platform takes assets a customer has deposited — for custody, as collateral, or to earn yield — and reuses them as its own collateral to borrow, trade, or lend elsewhere. Traditional finance permits limited, disclosed rehypothecation; crypto CeFi lenders often did it opaquely and without any cap.
The practice sat at the center of the 2022 collapses: Celsius, Voyager, and BlockFi recycled user deposits into risky positions, while FTX rehypothecated customer funds to Alameda Research. When markets fell, the same collateral backed several obligations at once and could not be returned. It is why "not your keys, not your coins" and proof-of-reserves gained urgency, and why restaking designs are scrutinized for reintroducing the same layered- collateral risk on-chain.