INSUBCONTINENT EXCLUSIVE:
Bitcoin lenders are betting that tighter controls and clearer risk management can rebuild trust in a sector still haunted by the collapse of
predecessors Celsius and BlockFi.Major Bitcoin lenders of the previous cycle imploded after turning user deposits into undercollateralized
crypto-backed loans are doomed by design
The failures were largely the result of poor risk management rather than the model itself
Some platforms are now taking the right steps, such as overcollateralization, while enforcing stricter liquidation thresholds, according to
(LTV) ratios, a sudden price swing in Bitcoin can still put lending models under stress.Some crypto lenders still rehypothecate to offer
better borrowing rates but also ensure investors are aware of risks
Source: LednBitcoin loans are evolving from Celsius-era modelsThe downfall of lenders like BlockFi and Celsius unveiled flaws in the way
early crypto lenders managed risk
Their models relied on rehypothecation, poor liquidity management and overleveraged bets wrapped in an opaque structure that gave clients
reuse client collateral for their own trades
Celsius and BlockFi routinely reused customer deposits, often without clear disclosure of capital buffers or regulatory limits, exposing
users to counterparty and liquidity risks
The key difference was that Celsius aggressively marketed to retail investors, while BlockFi had a stronger institutional footprint
This means that the funds locked for Bitcoin-collateralized loans are longer-term holders, corporate treasuries and institutional
Source: LOverlordOTW/Jack MallersRehypothecation still worries many crypto users burned by Celsius
Galaxy Research estimates its combined loan book peaked at $34.8 billion in the first quarter of 2022.But in the second quarter of that
year, the Terra stablecoin crash triggered a series of bankruptcies across the sector
Major lenders such as BlockFi, Celsius and Voyager Digital were caught in the disaster.The lending book size bottomed at $6.4 billion, an
82% decline from its glory days
The Bitcoin lending model is once again gaining traction, recovering to $13.51 billion in open CeFi borrows as of the end of the first
quarter of 2025, representing a 9.24% quarter-over-quarter growth, Galaxy Research estimated.Crypto-collateralized CeFi loans have
consistently climbed since bottoming out
However, a core structural risk is that the entire model hinges on a volatile asset like Bitcoin.The business models of lenders like Celsius
and BlockFi were already fragile, but their cracks started to widen into a full-blown crisis when Bitcoin prices fell.Related: US home
mortgage regulator considers Bitcoin amid housing crisisModern lenders have addressed many of these issues using overcollateralization and
stricter margin enforcement
liquidations despite the platform actively [monitoring] LTV and [enforcing] real-time margin calls
daily swings.In early 2025, Bitcoin frequently moved 5% in a day amid global trade tensions, even dipping to $77,000 in March, according to
CoinGecko.A 5% price fluctuation is still common for Bitcoin despite rising institutional interest
Savea, told Cointelegraph
term sheets that now prohibit rehypothecation, Mudie warned that crypto lenders are still working with a single-asset collateral pool whose
value can drop 5% overnight.Bitcoin loans are unlocking new financial use cases
As Cointelegraph reported on June 15, Bitcoin-collateralized loans allow users to tap liquidity without selling their holdings, helping them
avoid capital gains taxes and even access the real estate market
But Bitcoin purists remain wary
house is a great headline
envisions more crypto-native lending models: shared multisignature wallets, public onchain visibility, hard limits on collateral reuse and
automatic margin calls when prices drop
undergoing a cautious revival driven by tighter controls and a stronger grasp of the risks that brought down its first wave
But until volatility is solved at the root, even the safest-looking models will have to stay humble.Magazine: GENIUS Act reopens the door
