This post perfectly summarizes how I feel about bitcoin-backed loans : "Bitcoin Backed Loans - One Strike and You’re Out!" https://www.thebitcoinway.com/articles/bitcoin-backed-loans

Notably :

- Volatility and Liquidation Risks

- Counterparty Risks

- Regulatory Risks

- High Interest Rates and Collateral Requirements

- Rehypothecation Risks

- Tax Implications

And I would add another risk : "The Great Taking", by David Webb : https://thegreattaking.com/

For those who are interested in reading the legalese, take a look at what Webb explains about UCC section 8 : https://mpalmer.heresy.is/webnotes/TheGreatTaking/Security-Entitlement.html

and about Central Clearing Parties : https://mpalmer.heresy.is/webnotes/TheGreatTaking/Central-Clearing-Parties.html

Essentially, even if the bitcoin itself is not rehypothecated, the shares of the shareholders of the custodian could be swept up in a mass Great Taking. Ultimate rug-pull. A 5D-rug-pull.