Bitcoin lenders are betting that tighter controls and clearer threat administration can rebuild belief in a sector nonetheless haunted by the collapse of predecessors Celsius and BlockFi.
Main Bitcoin lenders of the earlier cycle imploded after turning consumer deposits into undercollateralized loans. When Bitcoin (BTC) costs fell and liquidity dried up, billions in buyer funds have been frozen or gone.
However these implosions don’t show that crypto-backed loans are doomed by design. The failures have been largely the results of poor threat administration reasonably than the mannequin itself. Some platforms are actually taking the best steps, comparable to overcollateralization, whereas imposing stricter liquidation thresholds, based on Alice Liu, head of analysis at CoinMarketCap.
“Higher transparency and third-party custody additionally assist to scale back counterparty threat in comparison with opaque fashions like Celsius,” she advised Cointelegraph.
However at the same time as some time period sheets now promise no rehypothecation and decrease loan-to-value (LTV) ratios, a sudden worth swing in Bitcoin can nonetheless put lending fashions underneath stress.
Bitcoin loans are evolving from Celsius-era fashions
The downfall of lenders like BlockFi and Celsius unveiled flaws in the way in which early crypto lenders managed threat. Their fashions relied on rehypothecation, poor liquidity administration and overleveraged bets wrapped in an opaque construction that gave purchasers little perception into how their property have been being managed.
Rehypothecation is a follow borrowed from conventional finance, the place brokers reuse shopper collateral for their very own trades. It’s a typical and controlled technique, nevertheless it’s usually capped and disclosed to purchasers with strict reserve necessities.
Platforms like Celsius and BlockFi routinely reused buyer deposits, typically with out clear disclosure of capital buffers or regulatory limits, exposing customers to counterparty and liquidity dangers. The important thing distinction was that Celsius aggressively marketed to retail buyers, whereas BlockFi had a stronger institutional footprint. BlockFi’s relationship with now-bankrupt crypto alternate FTX and sister firm Alameda Analysis proved to be simply as poisonous.
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The lending market within the present cycle consists of mature buyers and fewer “retail degens,” based on Liu. Because of this the funds locked for Bitcoin-collateralized loans are longer-term holders, company treasuries and institutional funds.
“Their motivations now focus on liquidity entry, tax optimization or diversification, not yield farming,” Liu mentioned. “This diminished the strain for merchandise to compete on higher phrases; as a substitute, safety and threat evaluation have been positioned on the forefront of the product evaluation by customers.”
Rehypothecation nonetheless worries many crypto customers burned by Celsius. Platforms like Strike — run by Bitcoin maximalist Jack Mallers — have promised by no means to rehypothecate buyer Bitcoin, whereas those who do have taken steps to clarify how the mannequin works and the way it helps decrease borrowing prices by higher transparency.
“Some gamers nonetheless rehypothecate the BTC, which means they’re reusing the collateral for unsecured lending elsewhere. That’s primarily the identical “black field” mannequin we noticed in 2021-2022,” mentioned Wojtek Pawlowski, CEO and co-founder of Accountable.
“So, whether or not it’s wholesome or dangerous actually is determined by the precise construction and the way clear it’s.”
Bitcoin-backed loans staging a comeback
Crypto-collateralized lending corporations have been amongst crypto’s largest rising stars only a few years again. Galaxy Analysis estimates its mixed mortgage guide peaked at $34.8 billion within the first quarter of 2022.
However within the second quarter of that yr, the Terra stablecoin crash triggered a collection of bankruptcies throughout the sector. Main lenders comparable to BlockFi, Celsius and Voyager Digital have been caught within the catastrophe.
The lending guide measurement bottomed at $6.4 billion, an 82% decline from its glory days. The Bitcoin lending mannequin is as soon as once more gaining traction, recovering to $13.51 billion in open CeFi borrows as of the tip of the primary quarter of 2025, representing a 9.24% quarter-over-quarter development, Galaxy Analysis estimated.
At the moment’s lending fashions have adopted improved threat controls, comparable to decreasing LTV ratios and clear steering on rehypothecation. Nevertheless, a core structural threat is that your entire mannequin hinges on a unstable asset like Bitcoin.
The enterprise fashions of lenders like Celsius and BlockFi have been already fragile, however their cracks began to widen right into a full-blown disaster when Bitcoin costs fell.
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Trendy lenders have addressed many of those points utilizing overcollateralization and stricter margin enforcement. However even conservative LTVs can unravel shortly in sharp downturns.
“BTC stays unstable, the place a 20% worth drop can nonetheless trigger mass liquidations regardless of the platform actively [monitoring] LTV and [enforcing] real-time margin calls. If platforms repackage collateral into yield methods (rehypothecation, DeFi yield farming, and many others.), the chance returns,” mentioned Liu.
Safer Bitcoin lending fashions will not be bulletproof
Bitcoin’s volatility has stabilized in comparison with its early years, nevertheless it stays vulnerable to sharp every day swings.
In early 2025, Bitcoin ceaselessly moved 5% in a day amid international commerce tensions, even dipping to $77,000 in March, based on CoinGecko.
“[Bitcoin-backed loans] are safer, however not bulletproof,” Sam Mudie, co-founder and CEO of tokenized funding firm Savea, advised Cointelegraph. “Decrease leverage, public proof-of-reserves and, in some instances, precise banking licenses are actual enhancements.”
Even with decrease LTV ratios and time period sheets that now prohibit rehypothecation, Mudie warned that crypto lenders are nonetheless working with a single-asset collateral pool whose worth can drop 5% in a single day.
Bitcoin loans are unlocking new monetary use instances. As Cointelegraph reported on June 15, Bitcoin-collateralized loans permit customers to faucet liquidity with out promoting their holdings, serving to them keep away from capital positive factors taxes and even entry the true property market.
However Bitcoin purists stay cautious. These use instances typically contain conventional monetary intermediaries and authorized programs, introducing new layers of threat.
“Utilizing Bitcoin to purchase a home is a good headline. Nevertheless, [Bitcoiners] additionally know property offers run by lots of legacy programs, not simply good contracts,” Mudie mentioned.
As a substitute, Mudie envisions extra crypto-native lending fashions: shared multisignature wallets, public onchain visibility, laborious limits on collateral reuse and computerized margin calls when costs drop. He added that platforms might additional defend customers by lending solely as much as 40% of the collateral’s worth.
For now, Bitcoin-backed lending is present process a cautious revival pushed by tighter controls and a stronger grasp of the dangers that introduced down its first wave. However till volatility is solved on the root, even the safest-looking fashions should keep humble.
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