What Is “Rehypothecation” and Is It Common in Crypto Prime Brokerage?

Rehypothecation is the practice where a prime broker uses a client's pledged collateral (assets) for its own financing or lending activities. While common in traditional finance, it introduces risk to the client.

In crypto prime brokerage, the practice is less common or highly restricted. This is due to regulatory uncertainty and client preference for segregated, non-rehypothecatable custody models to ensure asset safety.