Bitcoin Lenders Rebuild Trust With 9.24% QOQ Growth In 2025

Bitcoin lenders are making a comeback, aiming to rebuild trust in the sector following the collapse of major players like Celsius and BlockFi. These lenders are implementing stricter controls and clearer risk management practices to avoid the pitfalls of the past. The previous cycle saw major Bitcoin lenders fail due to poor risk management, turning user deposits into undercollateralized loans. When Bitcoin prices fell and liquidity dried up, billions in customer funds were frozen or lost.

However, the failures of these lenders do not necessarily mean that crypto-backed loans are inherently flawed. According to Alice Liu, head of research at CoinMarketCap, the issues were largely due to poor risk management rather than the model itself. Some platforms are now taking steps to improve transparency, enforce stricter liquidation thresholds, and use overcollateralization to mitigate risks. Better transparency and third-party custody also help reduce counterparty risk compared to opaque models like Celsius.

The downfall of lenders like BlockFi and Celsius exposed flaws in early crypto lending models. These models relied on rehypothecation, poor liquidity management, and overleveraged bets, all wrapped in an opaque structure that gave clients little insight into how their assets were being managed. Rehypothecation, a practice borrowed from traditional finance, involves brokers reusing client collateral for their own trades. While it is a common and regulated strategy, it was often not clearly disclosed to clients by platforms like Celsius and BlockFi, exposing users to counterparty and liquidity risks.

Today's lending market consists of more mature investors and fewer retail investors. The funds locked for Bitcoin-collateralized loans are now longer-term holders, corporate treasuries, and institutional funds. These investors are more focused on liquidity access, tax optimization, and diversification rather than yield farming. This shift has reduced the pressure for products to compete on better terms, placing security and risk assessment at the forefront of product evaluation by users.

Despite these improvements, some investors remain wary of rehypothecation. Platforms like Strike, run by Bitcoin maximalist Jack Mallers, have promised never to rehypothecate customer Bitcoin. Those that do rehypothecate have taken steps to explain how the model works and how it helps lower borrowing costs through greater transparency. Wojtek Pawlowski, CEO and co-founder of Accountable, noted that whether rehypothecation is healthy or risky depends on the actual structure and transparency of the model.

Crypto-collateralized lending companies were once among the biggest rising stars in the crypto sector. However, the Terra stablecoin crash in the second quarter of 2022 triggered a series of bankruptcies, including major lenders like BlockFi, Celsius, and Voyager Digital. The lending book size bottomed at $6.4 billion, an 82% decline from its peak. Today, the Bitcoin lending model is gaining traction again, with open CeFi borrows recovering to $13.51 billion as of the end of the first quarter of 2025, representing a 9.24% quarter-over-quarter growth.

Modern lenders have adopted improved risk controls, such as lowering loan-to-value (LTV) ratios and providing clear guidance on rehypothecation. However, the entire model still hinges on a volatile asset like Bitcoin. The business models of lenders like Celsius and BlockFi were already fragile, and their cracks started to widen into a full-blown crisis when Bitcoin prices fell. Modern lenders have addressed many of these issues using overcollateralization and stricter margin enforcement. But even conservative LTVs can unravel quickly in sharp downturns.

Bitcoin's volatility has stabilized compared to its early years, but it remains prone to sharp daily swings. In early 2025, Bitcoin frequently moved 5% in a day amid global trade tensions, even dipping to $77,000 in March. A 5% price fluctuation is still common for Bitcoin despite rising institutional interest. Sam Mudie, co-founder and CEO of tokenized investment company Savea, noted that Bitcoin-backed loans are safer but not bulletproof. Lower leverage, public proof-of-reserves, and in some cases, actual banking licenses are real improvements. However, crypto lenders are still working with a single-asset collateral pool whose value can drop 5% overnight.

Bitcoin loans are unlocking new financial use cases, allowing users to tap liquidity without selling their holdings, helping them avoid capital gains taxes and even access the real estate market. However, Bitcoin purists remain wary of these use cases, as they often involve traditional financial intermediaries and legal systems, introducing new layers of risk. Mudie envisions more crypto-native lending models, such as shared multisignature wallets, public onchain visibility, hard limits on collateral reuse, and automatic margin calls when prices drop. He added that platforms could further protect users by lending only up to 40% of the collateral’s value.

For now, Bitcoin-backed lending is undergoing a cautious revival driven by tighter controls and a stronger grasp of the risks that brought down its first wave. But until volatility is solved at the root, even the safest-looking models will have to stay humble.