Definition ∞ Asset-light borrowing describes lending arrangements where a borrower obtains funds with limited or no direct collateral. This approach typically relies on alternative forms of credit assessment, such as on-chain reputation, verifiable financial history, or delegated trust mechanisms. It aims to broaden access to credit beyond traditional overcollateralized models prevalent in decentralized finance. Such systems often involve social collateral or specific lending pools with risk mitigation strategies.
Context ∞ The principal discussion regarding asset-light borrowing revolves around balancing expanded credit access with effective risk mitigation in decentralized environments. A key debate involves developing robust credit scoring methods that do not compromise privacy or decentralization principles. Future progress will likely center on the widespread adoption of verifiable credentials and innovative reputation protocols to support more efficient and secure undercollateralized lending markets.
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