Define “Rehypothecation” in Traditional Finance

Rehypothecation is the practice where a bank or broker uses a client's pledged collateral (e.g. securities used as margin) for its own purposes, such as collateralizing its own loans or short sales. While common in traditional finance, it increases leverage and counterparty risk, as the client's assets are exposed to the broker's financial health.

It is generally not permitted in non-custodial crypto.