Europe’s regulatory squeeze on Tether’s USDT is moving beyond announcements and into platform-level implementation, but early data suggests it hasn’t upended global USDT usage.

When Revolut told European users it would delist USDT after Aug. 31, it reinforced a broader pattern: financial platforms are adjusting access to the world’s largest stablecoin as the EU’s Markets in Crypto-Assets (MiCA) stablecoin framework tightens. MiCA’s stablecoin rules have been phased in since 2024, and the EU-wide transition period ended on July 1, increasing pressure for platforms to remove offerings that don’t comply.

Key takeaways

• MiCA appears to be changing where regulated platforms can list USDT, but Artemis Analytics says it has not triggered a clear migration to other venues or chains.
• Artemis research quoted in the report indicates no noticeable shift in USDT supply or demand directly tied to MiCA coming into effect in Europe.
• Dollar stablecoin demand is increasingly tied to payments and cross-border transfers, not only trading or savings—making it less dependent on which exchanges list a particular token.
• Emerging-market stablecoin activity continues to expand, with chain usage on networks such as Binance Smart Chain and Tron rising in the period covered by Artemis data.
• For European users, the practical question shifts toward alternatives—potentially euro-denominated stablecoins—though the dollar still remains central to crypto’s benchmark.

MiCA pressure, but no obvious “migration” in USDT activity

MiCA’s stablecoin rules are designed to standardize and regulate issuers and offerings within the EU. As these requirements phase in—and deadlines pass—regulated gateways have been forced to reassess which stablecoins they can support legally.

However, a central point in the reporting is what hasn’t happened. According to Artemis Analytics, the restriction of USDT on a major European front hasn’t produced a measurable shock in broader USDT behavior.

“The data does not indicate any noticeable change in USDT supply or demand attributable directly to MiCA coming into effect in Europe… MiCA didn’t trigger a major venue or chain migration.”

In other words, while compliance has real consequences for retail access in Europe, USDT’s global utility may be resilient enough to absorb those changes without a dramatic reallocation of liquidity across major networks.

Why USDT demand is holding up: stablecoins as infrastructure

A key explanation offered in the piece is that USDT is being used for more than parking value or executing trades. In this framing, dollar stablecoins increasingly function as financial infrastructure—embedded in everyday movement of money, payments, and cross-border settlement.

The report points to Argentina as an illustrative case. Even as conditions around access to physical dollars have changed, stablecoin activity reportedly kept expanding. Lemon, an Argentine crypto and financial services platform, processed $9.3 billion in total volume in 2025—up 60% year-on-year. Transactional users reportedly rose 70% to nearly 1.8 million, and stablecoin volume grew 45% year-on-year.

Those figures are used to support a broader behavioral shift: stablecoins are increasingly treated as part of the payment rails rather than a purely defensive storage tool.

“The role of USDT and other dollar stablecoins is evolving. What we’re seeing is a shift from stablecoins as a store of value to stablecoins as financial infrastructure.”

The report attributes additional detail to Lemon’s business and planning manager, describing use cases that include payments, cross-border transfers, and connecting local users to international balances. The article describes a flow where Argentine users can pay in Brazil using PIX in pesos, receive dollars or euros from overseas credited as USDC, and also move between bank dollars and digital dollar balances. The point for readers: if stablecoins are operating across multiple payment paths and rails, their demand is harder to track solely through which tokens are available on regulated European platforms.

MiCA’s European “gateway” effect vs. global chain usage

Artemis data cited in the report also challenges the idea that MiCA would immediately restructure stablecoin usage on major chains. The article says Artemis observed daily users increasing on networks favored for low fees and day-to-day stablecoin use.

Specifically, the report states that daily users on Binance Smart Chain rose from about 318,000 in June 2024 to 1.56 million by July 2026. It also says daily users on Tron increased by 44% to around 908,000.

“That looks like expanding global and emerging market usage rather than a Europe-specific migration, and there’s no clear MiCA-timed break in the chain data.”

This distinction matters: it suggests MiCA is primarily changing how users in Europe access certain dollar stablecoins through regulated channels, not erasing the underlying demand for stablecoin settlement itself.

In the reporting, WeFi’s chief executive and co-founder Maksym Sakharov ties the behavior directly to utility. Users, the report argues, tend not to pick a stablecoin simply because it appears on a particular regulated platform. Instead, stablecoin choice is described as being driven by counterparty use, liquidity depth, and the ability to operate across markets.

“Users do not choose a stablecoin only because it is available on one regulated platform. They choose it because counterparties use it, liquidity is deep, and it works across many markets.”

The article also includes a perspective from OKX Europe’s chief executive, Erald Ghoos, saying OKX Europe has not offered USDT to European users for around two years. In that sense, the report frames the latest deadline as less of a fresh disruption for some platforms than for others that still maintained access later into the compliance cycle.

Europe’s alternatives and the dollar challenge

If USDT access on regulated EU gateways shrinks for some users and platforms, the next question becomes what those users switch to—and whether the alternatives can offer comparable liquidity and usability.

The report underscores a structural advantage the dollar has historically enjoyed in crypto: the US dollar remains the dominant benchmark across markets. Even though euro-denominated stablecoins may reduce friction for European end users by lowering the need for conversion, liquidity and network effects are unlikely to change overnight.

Still, the piece points to an emerging institutional interest in euro stablecoins. OKX Europe’s Erald Ghoos is quoted saying institutional players are showing increasing interest in creating more EUR-denominated stablecoins:

“What we are seeing from institutional players is interest in creating more EUR-denominated stablecoins, which is worth watching as it develops.”

MiCA determines which stablecoin products can be offered through regulated European platforms, but it cannot rewrite global crypto’s reference currency by itself. The report’s overall framing is that regulation may reshape the EU’s “front door,” while stablecoin demand—especially where it’s tied to cross-border flows—continues to follow deeper market utility and network adoption.

For investors and builders, the next thing to watch is whether USDT restrictions inside regulated EU channels lead to measurable changes in Europe-specific liquidity patterns over time—or whether usage simply routes through other networks and jurisdictions while stablecoin demand continues to grow globally. MiCA may be altering access, but the report suggests the larger stablecoin engine is still running on fundamentals tied to payments and interoperability.

Optimism governance has approved a proposal to redirect 546.9 million OP tokens—previously set aside for user airdrops—into a new initiative aimed at accelerating ecosystem development and institutional engagement.

On-chain approval also follows Optimism’s statement that it does not plan additional airdrops after distributing 269.1 million OP across five rounds. The decision is now a central point of debate among delegates over whether the foundation is moving from broad user acquisition to enterprise-focused growth early enough—and how success will be measured.

Key takeaways

• 546.9 million OP tokens earmarked for future airdrops will be repurposed to fund Optimism’s new Strategic Ecosystem Fund.
• Optimism says it has already completed its airdrop program, distributing 269.1 million OP in five rounds, and views airdrops as more suited to an earlier growth phase.
• The fund is designed to support partnerships and incentives intended to grow activity and liquidity on OP Mainnet and OP Enterprise.
• Some delegates raised concerns about broken promises to users and questioned how returns on the fund will be evaluated.
• At current levels, the repurposed allocation is roughly $50 million, depending on OP’s market price, according to CoinGecko.

Airdrop funds redirected into a strategic ecosystem budget

The governance vote approved the transfer of 546.9 million OP tokens into what Optimism describes as a new Strategic Ecosystem Fund. The intent is to shift resources toward ecosystem growth efforts that—according to the project—are better aligned with its current priorities around institutional adoption.

The proposal also signals a change in how Optimism is trying to compete. Rather than focusing on distributing tokens broadly to users, supporters argued the allocation could be used to strengthen relationships with chains, protocols, and institutions, and to offer incentives aimed at increasing on-chain activity and market depth.

However, the decision was not universally welcomed. Some delegates pushed back, arguing the tokens had been promised to users and raising questions about accountability. In particular, they wanted clarity on how the foundation would measure whether the fund delivers measurable outcomes rather than simply reallocating value.

The vote is recorded on Optimism’s governance platform: Optimism proposal.

Optimism says additional airdrops aren’t planned

Optimism stated that it has no additional airdrops planned after completing token distribution of 269.1 million OP across five rounds. The project framed this as a lifecycle transition: airdrops, it argued, are most useful during an earlier phase built around wide user onboarding, while its current stage emphasizes institutional and enterprise readiness.

That framing matters because it underpins the justification for repurposing the remaining allocation. If the airdrop program is considered complete, governance can treat the unused reserve as discretionary—while critics view the same reserve as a commitment that should be fulfilled later rather than redirected to new objectives.

Where the OP Stack revenue comes in

Optimism operates as an Ethereum scaling effort, including OP Mainnet and the OP Stack, a framework used by multiple networks. The article’s data points also highlight that Optimism’s broader economic model is not purely dependent on token incentives: the project says more than 30 OP Stack chains contribute revenue to Optimism. This revenue-linked ecosystem context is relevant to the fund debate because it suggests the foundation is trying to balance token-driven growth with platform-level earnings from chains built on its stack.

Optimism references its OP Stack ecosystem here: OP Stack.

Still, delegates’ concerns about measurable outcomes remain important regardless of revenue streams. A strategic fund can strengthen partnerships, but it also creates an additional channel where governance stakeholders will want evidence of effectiveness.

Token impact and broader market signals

Following the vote, OP reportedly traded around $0.09 on Thursday, up roughly 11% over 24 hours amid a broader crypto market rally. Even with the rebound, OP remains far below its peak—more than 93% under its all-time high, based on market tracking data.

CoinGecko data also places OP’s market cap at roughly $214 million with a circulating supply of about 2.29 billion OP. The same dataset implies the governance allocation—546.9 million tokens—is worth in the neighborhood of $50 million at current prices, or close to a quarter of the token’s reported market capitalization.

CoinGecko: OP on CoinGecko.

This matters for investors because token allocation votes can affect expectations about how the ecosystem will be funded and how quickly it can convert into growth. While a funding shift does not guarantee price movement, it can influence sentiment around whether a network is focused on sustainable activity and institutional adoption—or whether it is sacrificing user-facing promises for faster enterprise positioning.

Enterprise narrative under development

Optimism’s decision lands alongside ongoing enterprise-leaning activity. Earlier coverage from Cointelegraph noted that Optimism signed a memorandum of understanding with Viva Republica, the operator of South Korea’s mobile money app Toss, to test a Korean won-based stablecoin infrastructure for institutional payments over a three-month proof-of-concept period.

This is the kind of partnership angle the governance supporters are effectively betting on with the Strategic Ecosystem Fund: using OP resources to accelerate collaborations that can translate into real-world payment rails and institutional workflows.

Earlier coverage: Cointelegraph report.

Still, the governance pushback underscores the tension investors and users should watch: the network is trying to move toward enterprise growth, but delegates also want assurance that token commitments to users and the promise of earlier allocations are handled transparently.

Going forward, market participants will likely track whether Optimism provides clear reporting on how the Strategic Ecosystem Fund is deployed and what measurable milestones it targets—especially given the vote’s stated goal of growing activity and liquidity on OP Mainnet and OP Enterprise.

As US federal debt tops $40 trillion for the first time, there is renewed debate over whether mounting government borrowing could strengthen Bitcoin’s case as a scarce, non-sovereign asset.

Interest costs have also climbed, surpassing Medicare to become the federal government’s second-largest budget expense behind Social Security in the first 10 months of fiscal 2026, according to Reuters.

The debt milestone coincided with a Treasury move to calm a bond selloff that’s pushed long-term yields to their highest levels since 2007. Treasury Secretary Scott Bessent said Wednesday the department would double buybacks of 10- to 30-year debt to at least $4 billion per operation, initially pushing yields and the US dollar lower as Bitcoin (BTC) and gold rallied.

Bitcoin is continuing to surge, trading around $72,600 on Thursday morning, up roughly 6% over the past 24 hours and 15% over the past week, according to CoinGecko data.

Source: Yahoo Finance

Related: Bitcoin ETFs add $189M as August net inflows approach $1B

Treasury buybacks add another potential Bitcoin catalyst

While Bloomberg and others attributed elements of Bitcoin’s rally to optimism over friendlier US crypto policy following President Donald Trump’s meeting with industry executives at the White House on Wednesday, market analysts pointed to the Treasury and broader fiscal conditions as additional factors.

TrendLabs founder and chartered market technician JC Parets pointed to the Treasury’s move to increase purchases of longer-term government bonds, which he said bond-market participants viewed as an effort to push back against rising long-term rates. Parets said:

If the market believes the government is going to push back against rapidly rising long-term rates, that can change the math for everything else investors own. Including Bitcoin.

Bitunix analyst Dean Chen offered another view, saying that the debt milestone is not inherently bullish for Bitcoin. While Treasury buybacks temporarily lowered long-term yields and weakened the dollar, persistent deficits and growing financing needs could eventually push borrowing costs higher again.

Chen said Bitcoin’s near-term direction will depend more on broader financial conditions, pointing to US dollar strength, long-term Treasury yields and inflation expectations as key variables to watch.

Analysts at DeFi protocol Yield Basis took a longer-term view, telling Cointelegraph that continued growth in US debt could strengthen demand for Bitcoin as a hedge against currency debasement because of its fixed supply and lack of a sovereign issuer. They said:

Whether it will actually become a new reserve asset remains to be seen, but as concerns around fiat currency debasement grow, it will definitely stand out more as a straightforward protective instrument (alongside more traditional assets like gold).

Magazine: MiCA cracks down on USDT in Europe… but no one else cares

Bitcoin’s latest rally is unfolding alongside a stark escalation in US public finances, as the US federal debt pushed above $40 trillion for the first time and Treasury yields surged to their highest levels since 2007. The developments have reignited discussion among crypto market participants about whether worsening fiscal dynamics strengthen Bitcoin’s longer-term narrative as a scarce, non-sovereign asset.

At the same time, the US Treasury moved to address stress in the bond market. According to Reuters, interest costs have risen sharply, surpassing Medicare to become the federal government’s second-largest budget expense behind Social Security in the first 10 months of fiscal 2026. The debt milestone also coincided with a Treasury action designed to calm a bond selloff, pushing long-term yields higher overall before a targeted response from the department.

Key takeaways

• US federal debt crossed $40 trillion for the first time, renewing debate over whether fiscal instability boosts Bitcoin’s “hard asset” appeal.
• Treasury’s plan to increase buybacks of 10- to 30-year debt aims to blunt rising long-term yields, which can influence risk assets and crypto sentiment.
• Bitcoin was around $72,600 on Thursday morning, up roughly 6% over 24 hours and 15% over a week, according to CoinGecko data.
• Analysts are split on whether debt levels are structurally bullish for Bitcoin—some stress near-term financial conditions, others focus on longer-term hedge demand.

From debt milestone to bond-market pressure

The $40 trillion debt milestone matters because it changes the backdrop for investors across asset classes: more borrowing typically implies greater interest expense and a bigger refinancing need over time. Reuters reported that in fiscal 2026 through the first 10 months, interest costs have climbed to become the federal government’s second-largest budget outlay behind Social Security.

At the same time, a separate Reuters report tied the timing to a Treasury effort to manage a bond selloff. That stress period has coincided with long-term yields reaching their highest point since 2007.

According to Reuters, Treasury Secretary Scott Bessent said Wednesday the department would double buybacks of 10- to 30-year debt to at least $4 billion per operation. The immediate market reaction—initially pushing yields and the US dollar lower—helped support a broader risk-on move, with Bitcoin and gold both rallying.

Bitcoin rises as markets weigh fiscal math

Bitcoin was trading around $72,600 Thursday morning, up about 6% over the previous 24 hours and roughly 15% over the past week, based on CoinGecko data. While the rally has attracted attention for potential policy implications, market observers highlighted that macro factors tied to US rates and the dollar may be playing at least as big a role.

Earlier coverage referenced by Yahoo Finance and others attributed parts of Bitcoin’s surge to optimism around friendlier US crypto policy following President Donald Trump’s meeting with industry executives at the White House on Wednesday. Still, Bloomberg-style attributions were not the only explanation. Analysts cited Treasury buybacks and fiscal conditions as additional drivers affecting the “math” investors use when allocating capital.

Why buybacks could help in the short run—and hurt later

TrendLabs founder and chartered market technician JC Parets argued that the Treasury’s increased purchases of longer-term bonds were likely aimed at pushing back against rapidly rising long-term rates. In an analysis cited by TrendLabs, Parets suggested that if markets begin to believe the government will counter higher long-term yields, it can change the valuation assumptions for a wide range of holdings—including Bitcoin.

“If the market believes the government is going to push back against rapidly rising long-term rates, that can change the math for everything else investors own. Including Bitcoin.”

Other analysts offered a more cautious counterpoint. Bitunix analyst Dean Chen, writing in a market note cited by Cointelegraph, said the debt milestone itself is not automatically bullish for Bitcoin. Chen’s view was that Treasury buybacks may lower long-term yields temporarily and weaken the dollar, but persistent deficits and the continued build-up of financing needs could still push borrowing costs higher again over time.

In that framing, Bitcoin’s direction would depend less on the headline debt number and more on a set of observable financial variables: US dollar strength, long-term Treasury yields, and inflation expectations.

A hedge narrative returns—though “reserve” status remains unproven

Beyond short-term rate dynamics, some analysts focused on the longer-term demand argument. Yield Basis, a DeFi protocol referenced by Cointelegraph, described continued growth in US debt as potentially increasing interest in Bitcoin as a hedge against currency debasement. Their reasoning is rooted in Bitcoin’s fixed supply and the absence of a sovereign issuer, unlike fiat currencies that can be influenced by monetary policy and fiscal financing.

“Whether it will actually become a new reserve asset remains to be seen, but as concerns around fiat currency debasement grow, it will definitely stand out more as a straightforward protective instrument (alongside more traditional assets like gold).”

That position highlights a key tension in the debate: Bitcoin may become more prominent during periods of fiscal strain and money-supply concern, but the step from “hedge” to “reserve” is still not determined by adoption narratives alone. Investors will likely look for sustained shifts in real-world demand signals, not just macro headlines.

What to watch next

For traders and longer-term investors, the immediate question is whether Treasury’s longer-term buyback activity can keep yields from resuming their climb—and whether the US dollar and inflation expectations stabilize. More broadly, the durability of Bitcoin’s rally may hinge on whether the market’s view of fiscal “math” changes from short-term support to persistent concern, or whether deficits ultimately translate into higher borrowing costs again.

Elon Musk’s X has begun exploring USDC and other stablecoins as possible payment methods for creators while preparing to replace its existing revenue-sharing system.

X considers USDC for creator rewards

CoinDesk reported on Thursday that X is discussing whether to pay creators and other content providers with stablecoins, citing a person familiar with the plans.

Circle Internet Group’s USDC is one of the digital tokens under consideration, although X has not chosen a payment method or disclosed when it could introduce stablecoin payouts. Talks remain active, according to the source, who also works with other social media companies testing stablecoins for influencer commissions.

X did not respond to CoinDesk’s request for comment, leaving the possible payment structure, supported countries and blockchain networks unconfirmed. The report also did not state whether creators would receive stablecoins by default or select them as an alternative to bank payments.

A stablecoin option could allow X to use one dollar-linked asset for creators in several countries, rather than arranging separate transfers through each local banking system. Any practical benefit would still depend on the networks, wallets, conversion services and withdrawal rules selected by the company.

USDC is designed to maintain a one-to-one value with the U.S. dollar and can move across several public blockchains. Circle says the token is issued through its regulated affiliates and backed by reserves intended to support redemption at its stated value.

The reported discussions come as the combined stablecoin market has exceeded $300 billion. While digital dollars remain widely used for crypto trading and settlement, payment companies and online platforms have also begun testing them for contractor, customer and creator payouts.

Original Content Rewards changes how X pays users

Alongside the stablecoin talks, X is preparing to end its Revenue Sharing program and replace it with Original Content Rewards on Sept. 8. The current system will continue through Sept. 7, according to the company’s published schedule.

X said the replacement program is designed to “reward creators who bring original ideas, expertise, reporting, creativity, and commentary to X.”

Under the announced eligibility rules, creators must have at least 500 verified followers and record at least 500,000 Home Timeline impressions from verified users during the previous 90 days. Users must also meet the platform’s other monetization requirements.

Payments will be based on qualified impressions from Premium subscribers viewing eligible original posts in the Home Timeline. X defines a qualified impression as a unique view in which at least half of the post appears on screen.

Eligible material can include original reporting and analysis, user-produced videos and photographs, graphics, illustrations, memes and meaningful commentary. Reposted work, copied material and posts designed mainly to manipulate engagement are not meant to qualify under the revised system.

The company has not said whether stablecoin payments, if adopted, would arrive with the Sept. 8 rewards launch or be added later. No details have been released about wallet support, conversion fees, custody arrangements or how creators could recover funds sent to an incorrect address.

Stablecoin transfers can differ from conventional payouts because blockchain transactions are generally irreversible after confirmation. A platform offering the option would therefore need to decide how it verifies wallets, handles failed transfers and assists creators who lose access to their accounts.

X Money has already added U.S. payment services

X’s interest in stablecoins follows the introduction of financial services inside its main social platform. In July, the company launched X Money for Premium and Premium+ subscribers in the United States, offering deposit accounts, instant transfers and a Visa debit card.

X Money allows eligible users to send funds to other X accounts without transfer fees. Its deposit accounts advertise annual yields of up to 6%, while qualifying purchases made with the X Card can earn 3% cashback.

Cross River Bank provides the banking infrastructure behind the service and holds customer deposits. Funds held directly by the bank can receive Federal Deposit Insurance Corporation protection of up to $250,000, while an optional sweep arrangement can distribute deposits among participating banks and provide eligible users with up to $10 million in aggregate pass-through coverage.

X Payments itself is not a bank or an FDIC-insured institution. The company also had not announced support for Bitcoin, Dogecoin or any stablecoin when it introduced X Money, making the reported creator-payment talks a separate potential use of digital assets.

Crypto experience entered X’s senior product team before the payment rollout. In March, the company appointed Benji Taylor as head of design after he held product and design positions at Aave, Avara and Coinbase’s Base network.

Taylor’s background includes work on crypto wallets, decentralized finance products and consumer applications. His personal website also lists roles connected to xAI and SpaceX, although X has not linked his appointment to the reported USDC discussions.

Musk has previously described payments as one part of his plan to turn X into an application combining social media and financial services. The company’s current U.S. rollout relies on established banking and card infrastructure, while stablecoin payouts would introduce blockchain settlement into at least one part of its creator business.

U.S. stablecoin rules would shape any X rollout

For American users, a USDC payment option would fall within a developing federal framework established by the GENIUS Act. President Donald Trump signed the law in July 2025, creating national rules for payment stablecoin issuers and certain companies that distribute their tokens.

The law requires permitted issuers to maintain one-to-one reserves in approved liquid assets, provide regular disclosures and meet redemption and compliance requirements. Most provisions are expected to take effect on Jan. 18, 2027, unless final implementing rules activate them earlier.

On Aug. 17, the U.S. Treasury Department proposed new rules defining when a payment stablecoin is issued, offered or sold in the United States. The definitions would help determine when an issuer needs a federal or state license and when a digital asset service provider becomes subject to restrictions covering U.S. customers.

Treasury opened the proposal for public comment for 60 days after its publication in the Federal Register. The agency is also addressing how U.S. platforms may offer foreign-issued stablecoins once the law’s distribution restrictions begin.

Circle’s status as a U.S.-based issuer could make USDC relevant to companies seeking dollar-denominated blockchain payments under the new framework. Circle has not publicly confirmed that it is working with X, and the report did not identify the other stablecoins under review.

Creator payouts would also remain taxable income for U.S. recipients regardless of whether X pays them through a bank transfer or a dollar-linked token. The Internal Revenue Service requires taxpayers to report income received in digital assets at its fair market value when received, while later disposals can create separate gains or losses if the asset’s value changes.

Another social media company has already tested a comparable model outside the United States. In April, Meta introduced USDC payouts for selected creators in Colombia and the Philippines, using wallets on Solana and Polygon.

Stripe processes Meta’s stablecoin payments and may provide users with crypto-related tax documents tied to the transactions. Meta’s support page says eligible creators can link a compatible wallet, receive USDC and convert the tokens into local currency through supported services where available.

Arch Lending co-founder Himanshu Sahay has identified qualified custody, zero rehypothecation, and clear collateral rules as three safeguards needed to reduce risks in Bitcoin-backed lending.

Himanshu Sahay, co-founder and chief technology officer of Bitcoin-backed lending platform Arch Lending, told crypto.news that wealthy Bitcoin holders are increasingly using loans to meet cash needs while keeping their exposure to the asset.

“For long-term Bitcoin holders, borrowing can provide liquidity without requiring them to sell their position,” Sahay said.

Individuals may use the proceeds for another investment or personal expenses, while family offices and businesses can borrow for working capital, according to Sahay. The arrangement allows the borrower to retain ownership of their Bitcoin unless the loan terms trigger a collateral sale.

A recent report on lending found that demand for Bitcoin-backed credit has recovered as investors look for liquidity without selling their holdings. The report said lending platforms have responded to the failures of 2022 by adopting clearer custody arrangements, plainer disclosures and more conservative risk controls.

Bitcoin-backed loans provide cash without an immediate sale

For US investors, selling appreciated Bitcoin generally requires the holder to calculate a capital gain or loss. The Internal Revenue Service treats digital assets held for investment as capital assets and requires taxpayers to report gains or losses when they sell or otherwise dispose of them.

Using Bitcoin as loan collateral does not involve the same immediate sale. Tax treatment can change, however, if the lender liquidates some or all of the collateral, while individual circumstances may create other reporting issues. The IRS advises digital-asset investors to consult a qualified tax professional when determining how a transaction should be reported.

Sahay did not present borrowing as a way to remove financial risk. Interest costs increase the amount that must be repaid, while a drop in Bitcoin’s price can raise the loan-to-value ratio, or LTV, until the borrower faces a margin call.

“Borrowing is not risk-free. It comes with interest costs, margin-call risk, and potential liquidation if the value of the collateral falls.”

Under a typical Bitcoin-backed loan, the LTV compares the outstanding debt with the current value of the pledged Bitcoin. If the asset declines enough, the borrower may need to add collateral or repay part of the loan. Failure to meet the lender’s requirements can lead to the sale of some or all of the Bitcoin.

Artem Ponomarev, founder and CEO of XPlace, made a similar case in an Aug. 18 interview, calling for safer borrowing tools built around conservative LTV limits, continuous collateral monitoring and clear liquidation terms. Ponomarev said borrowers should understand what will happen if their collateral loses value before taking out a loan.

Qualified custody separates collateral from the lender

Sahay described custody as the foundation of a properly structured Bitcoin-backed loan because it determines who controls the private keys and what can happen to the collateral during the loan term.

“At Arch Lending, collateral is held with Anchorage Digital Bank, a federally chartered U.S. bank and qualified custodian,” Sahay said. “Arch Lending does not hold the private keys, and borrower collateral is not rehypothecated.”

The Office of the Comptroller of the Currency granted Anchorage Digital Bank a national trust bank charter in January 2021. According to the OCC, Anchorage received approval to perform fiduciary, agency, and custodial activities after agreeing to capital, liquidity, and risk-management requirements under an operating agreement.

Federal oversight has not placed Anchorage beyond regulatory action. In April 2022, the OCC issued a consent order after finding that the bank had failed to adopt and implement a compliance program that met Bank Secrecy Act and anti-money-laundering requirements. The regulator required Anchorage to appoint a compliance committee and improve its customer due diligence, suspicious-activity monitoring, and independent testing.

Qualified custody is intended to place the assets with an institution that operates under defined regulatory and control requirements. Sahay said the arrangement can reduce operational risks involving private-key management, unauthorized transfers, and the separation of borrower assets.

Custody does not protect a borrower from a falling Bitcoin price, according to Sahay. It also does not prevent a liquidation carried out under the loan agreement after the collateral crosses a specified LTV level.

According to Arch’s website, Anchorage holds collateral in individually segregated wallets, while Arch does not lend, stake, or trade the pledged assets. The company also advertises up to $100 million in insurance coverage through Anchorage, although such insurance applies to specified custody and operational events rather than losses caused by Bitcoin price declines or contractually permitted liquidations.

Arch’s website lists initial Bitcoin LTV ratios of up to 60%. It says borrowers receive warnings and margin calls as the ratio rises, with partial liquidation available to restore the loan to its required level. Exact thresholds and terms can vary by product and loan agreement.

No rehypothecation limits connected lending risks

Rehypothecation occurs when a lender or custodian reuses pledged collateral in another loan, trade or investment. Sahay said a no-rehypothecation policy prevents a borrower’s Bitcoin from being deployed elsewhere while it secures the original loan.

“No rehypothecation protects against a different risk: the collateral being lent out or deployed elsewhere,” he said.

Reusing collateral can expose a borrower to additional counterparties because the lender may depend on another institution to return the assets. If the receiving institution defaults or freezes withdrawals, the original lender may be unable to return the Bitcoin even when the borrower meets the loan obligations.

An October 2025 report on a multi-signature Bitcoin platform described another structure intended to prevent rehypothecation. The Sygnum and Debifi product placed collateral in a wallet requiring approval from three of five signatories, including the borrower, the bank, and independent parties, before the Bitcoin could move.

Sahay said borrowers should examine several parts of a lending agreement rather than rely on one safeguard. Relevant questions include who holds the Bitcoin, whether collateral can be reused, how the lender funds the loan, which LTV thresholds apply, and what happens if either party encounters financial trouble.

Independent custody and no rehypothecation address different risks. Custody controls who can authorize a transfer, while the loan contract determines whether the lender has permission to deploy the collateral. Asset segregation and bankruptcy remoteness involve separate legal questions about whether creditors could claim the Bitcoin if the lending company failed.

The 2022 failures exposed opaque lending structures

According to Sahay, the collapse of Celsius, BlockFi, and Genesis showed why custody, lending, and asset deployment should not be combined without clear disclosures.

“Many of the failed lenders combined custody, lending and asset deployment in ways that made it difficult for customers to understand where their collateral was or how much risk was being taken with it.”

The Federal Trade Commission alleged in July 2023 that Celsius took title to more than $4 billion in customer crypto deposits. According to the agency, Celsius used customer assets to fund its operations, pay rewards, borrow from other institutions, and make risky investments despite telling users that deposits were safe and available.

BlockFi’s problems also extended beyond custody. In February 2022, the Securities and Exchange Commission charged the lender with failing to register its retail interest accounts and making false and misleading statements about the collateral backing institutional loans. BlockFi agreed to pay $100 million to the SEC and 32 US states before filing for bankruptcy in November 2022 following its exposure to FTX.

Genesis Global Capital suspended withdrawals that same month and filed for Chapter 11 protection in January 2023. In May 2024, the New York attorney general secured a $2 billion settlement intended to support recoveries for affected investors and barred Genesis from operating in the state. The attorney general said at least 29,000 New Yorkers had placed more than $1.1 billion into the Gemini Earn program connected to Genesis.