Asset-Backed Lending involves securing a loan with specific digital assets as collateral. Borrowers provide cryptoassets, such as Bitcoin or Ethereum, to obtain a loan, typically in stablecoins or fiat currency. This mechanism reduces lender risk by providing recourse to the collateral if the borrower defaults on repayment obligations. The value of the collateral is continuously monitored to manage market volatility.
Context
Asset-backed lending is a significant component of the decentralized finance (DeFi) ecosystem, offering liquidity solutions without traditional intermediaries. Market observers note its expansion and the associated risks, including collateral liquidation events during sharp market declines. Regulatory scrutiny increases concerning the transparency and stability of collateral valuation methods within these lending protocols.
New UCC Article 12 establishes "control" as the perfection standard for security interests in digital assets, fundamentally de-risking secured lending.
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