How Does the ‘Rehypothecation’ of Collateral Differ in Crypto Vs. Traditional Finance?

In traditional finance, prime brokers often rehypothecate (re-use) client collateral to fund their own operations or facilitate other clients' trades, which is governed by strict regulations. In crypto, rehypothecation is less common and more controversial due to a less mature regulatory framework and the unique risks of digital assets.

When it occurs, it often involves lending the crypto assets, introducing smart contract and counterparty risk.