Definition ∞ Borrowing against Assets describes the practice of obtaining a loan by pledging existing holdings as security. In the digital asset space, this typically involves depositing cryptocurrency into a lending protocol or centralized platform to secure a loan, often denominated in stablecoins. The collateral mitigates risk for the lender, allowing for non-custodial or trust-minimized credit arrangements. Should the borrower fail to repay, the pledged assets may be liquidated.
Context ∞ This financial mechanism is a fundamental component of decentralized finance (DeFi), enabling users to access liquidity without divesting their crypto holdings. News often covers the liquidation risks associated with volatile collateral assets, particularly during periods of market downturn. Ongoing discussions address the need for robust risk management frameworks and clearer regulatory guidance for these lending activities.
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