Qualified Custody, No Rehypothecation Key to Safer Bitcoin-Backed Lending
Arch Lending's co-founder and CTO Himanshu Sahay emphasizes the importance of qualified custody and no rehypothecation in Bitcoin-backed lending. According to him, these safeguards can reduce risks for borrowers and lenders alike.
Custody is crucial as it determines who controls the private keys and what happens to the collateral during the loan term. Arch Lending holds collateral with Anchorage Digital Bank, a federally chartered U.S. bank and qualified custodian. The company does not hold the private keys, and borrower collateral is not rehypothecated.
No rehypothecation prevents the lender from reusing pledged collateral in another loan or trade, thereby reducing the risk of connected lending risks. Borrowers should examine various aspects of a lending agreement, including who holds the Bitcoin, whether collateral can be reused, and what happens if either party encounters financial trouble.
As Sahay noted, the collapse of Celsius, BlockFi, and Genesis showed why custody, lending, and asset deployment should not be combined without clear disclosures. Arch Lending's approach prioritizes transparency and regulatory compliance to protect both borrowers and lenders.