Rehypothecation is the lending of users’ collateral assets to earn yield - it’s how the vast majority DeFi and CeFi liquidity protocols generate returns. But it also creates a “pooled-risk” problem where all users are exposed to the riskiest asset in a protocol’s collateral pool, resulting in outcomes where users cannot withdraw collateral even after a loan is repaid. Protocols attempt to manage this risk by carefully selecting collateral assets and choosing good oracle partners, but it is always present.

Granite never rehypothecates collateral: your BTC stays in the protocol and is never lent out. This eliminates “pooled risk”, making Granite far safer than most liquidity protocols. As a result, though, collateral does not earn yield - a small price to pay for peace of mind.