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I’ve noticed market demand for loans against Bitcoin. Why is there only 1 entity (that I know of) doing this at a retail level?

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It is a risky business for the lender.

They rehypothecate, which is also risky for the borrower.

They try to avoid regulation...

So, it is best to do it on an institutional level.

Maybe I’m missing something from a legal perspective, but how can it be that risky if the lender can liquidate the btc?

Protocol risk, sudden crash, theft...