Bitcoin lenders say institutions want crypto credit to look more like TradFi

⦿ Executive Snapshot

• What: Institutional bitcoin lenders are shifting towards traditional finance practices following the crypto credit crises of 2022.
• Who: Executives from Two Prime, Ledn, and Lygos Finance discussed the changes at Consensus 2026.
• Why it matters: The adoption of traditional finance principles in crypto lending may enhance institutional trust and capital inflow in the sector.

⦿ Key Developments

• Institutional borrowers prioritize custody, transparency, and standardized lending structures over complex DeFi products after the collapses in 2022.
• Panelists noted that scrutiny over bitcoin collateral storage and rehypothecation practices has increased among institutional borrowers.
• Future growth in bitcoin-backed credit will rely on demonstrating predictable behavior, legal accountability, and identifiable intermediaries, reflecting traditional finance norms.

⦿ Strategic Context

• The shift away from complex DeFi structures is a response to the failures of Celsius, Voyager, and BlockFi, which highlighted risks associated with opaque leverage and weak risk controls.
• Historically, decentralized finance has focused on permissionless access and capital efficiency, but institutional finance emphasizes predictability and operational simplicity.

⦿ Strategic Implications

• Immediate consequences include potential increases in institutional capital flow into compliant and standardized crypto lending products.
• Long-term implications suggest a transformation in the crypto lending landscape towards models that offer transparency and legal accountability akin to traditional finance.

⦿ Risks & Constraints

• Regulatory risks may arise as crypto lending adapts to align with traditional finance standards, potentially facing scrutiny from authorities.
• Competition from established financial institutions could pose challenges for crypto lenders striving to gain institutional trust and market share.

⦿ Watchlist / Forward Signals

• Upcoming milestones may include the introduction of new standardized lending products that meet institutional requirements.
• Future developments will be signaled by the degree of institutional adoption of bitcoin-backed lending products and their performance in market stress scenarios.