A borrowing mechanism in decentralized finance permits users to acquire digital assets by providing other digital assets as collateral. These systems facilitate the temporary acquisition of capital without requiring traditional financial intermediaries. Participants typically pay an interest rate on borrowed funds, while those supplying assets earn a yield. This process underpins a significant portion of the DeFi ecosystem.
Context
Decentralized borrowing mechanisms are fundamental to the functionality of many DeFi platforms, enabling capital efficiency and diverse financial strategies. The security of smart contracts governing these mechanisms and the volatility of collateral values are constant subjects of analysis in crypto news. Understanding these systems is essential for assessing DeFi market health.
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