Bad debt accrual describes the increase of unrecoverable loans within a lending system. This occurs when borrowers default on their obligations, making the lent assets unlikely to be repaid. In decentralized finance, it typically results from insufficient collateral or oracle failures. Such accumulation can destabilize lending protocols and affect liquidity providers.
Context
Reports on bad debt accrual frequently surface during periods of market volatility or after security exploits in DeFi lending platforms. The industry is actively working on improved risk assessment models and more robust liquidation mechanisms to limit its impact. Monitoring these accruals provides insight into the health of various protocols.
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