Rehypothecation refers to the practice where a financial institution or intermediary (brokers) uses assets, typically securities or funds, pledged as collateral by a customer for its activities, such as lending or trading, without the explicit consent of the asset owner.

Rehypothecation involves leveraging digital assets held by one party, such as an exchange, for other purposes without the explicit permission of the original owner.

In crypto, rehypothecation can occur when users deposit their cryptocurrencies onto exchanges or platforms for trading or other services.

These platforms might use these deposited assets to facilitate margin lending, trading activities, or other investments without explicit consent from the asset holders.

While this practice can enable platforms to increase liquidity and provide additional services, it can pose risks, such as the potential loss of control over assets or exposure to counterparty risks if the platform faces financial distress.