Bitcoin lenders are tightening controls post-collapse of predecessors, but volatility still poses challenges
From Cointelegraph
June 27, 2025 10:00 AM:
Bitcoin lenders are working to rebuild trust after the collapse of predecessors Celsius and BlockFi by implementing tighter controls and clearer risk management. Some platforms are now overcollateralizing loans and enforcing stricter liquidation thresholds to mitigate risk. However, sudden price swings in Bitcoin can still stress lending models.
The downfall of Celsius and BlockFi was due to poor risk management, rehypothecation of user deposits, and lack of transparency. The lending market now consists of more mature investors and institutional funds, reducing the pressure to compete on better terms. Platforms like Strike are promising never to rehypothecate customer Bitcoin.
Crypto-collateralized lending companies faced bankruptcies in 2022 due to the Terra stablecoin crash, leading to an 82% decline in the lending book size. However, the Bitcoin lending model is making a comeback, with open CeFi borrows growing 9.24% quarter-over-quarter. Today’s lending models have improved risk controls but remain vulnerable to Bitcoin’s volatility.
Bitcoin’s volatility, despite stabilizing compared to its early years, still poses risks to lending models. While lower leverage and enhanced risk controls have made Bitcoin loans safer, they are not bulletproof. Even with lower LTV ratios and prohibitions on rehypothecation, lenders are still exposed to the risk of sharp price fluctuations. Bitcoin-backed loans are unlocking new financial use cases, but some remain cautious. Bitcoin is being used to buy houses, but risks remain due to reliance on traditional systems. Crypto-native lending models like shared multisignature wallets and automatic margin calls are seen as safer options. Bitcoin-backed lending is making a cautious comeback with tighter controls, but volatility still poses a challenge for the future. The GENIUS Act may pave the way for a Meta stablecoin, but its success remains uncertain.
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