What Is the Concept of "Rehypothecation" in DeFi and Its Associated Risk? ▴ Learn

What Is the Concept of “Rehypothecation” in DeFi and Its Associated Risk?

Rehypothecation is the practice of an institution (or protocol) using a client's collateral for its own purposes, such as lending it out to another party. In DeFi, this means collateral deposited in one protocol is used as collateral in another.

This creates a highly leveraged, interconnected web where a small price drop can trigger a massive, simultaneous wave of liquidations across multiple layers.

Explain the Difference between ‘Hypothecation’ and ‘Rehypothecation’

How Does the Risk of Rehypothecation Change for a Client with a Fully Paid-for Security versus One Held on Margin?

Explain the Role of Collateral in Maintaining a Leveraged Cryptocurrency Derivatives Position

What Is the Concept of ‘Rehypothecation’ in Traditional Finance and How Does It Relate to DeFi?