Rehypothecation
When a firm holding your assets as collateral reuses them for its own borrowing or lends them onward to someone else.
In regulated securities markets rehypothecation is permitted but bounded, with limits on how much of a customer's collateral may be reused, disclosure in the margin agreement, and rules requiring excess customer assets to be segregated. Digital-asset platforms borrowed the practice without necessarily borrowing the constraints, so terms of service have at times allowed unlimited reuse of assets, or even transferred legal title of deposited coins to the platform. The consequence is that the same coin can support several simultaneous claims, and the shortfall becomes visible only when many holders try to withdraw at once. Several lending platform failures in 2022 involved customer assets that had been lent onward and could not be recalled.
En pratique
Terms of service language stating that title to deposited assets transfers to the platform is the legal step that converts a depositor into an unsecured creditor.
Le malentendu courant
That a balance displayed by a platform means the coins are sitting untouched in an account for you, when a balance is a claim and the agreement may permit the platform to have lent those coins to others.