Borrowing Power

Definition ∞ Borrowing power represents the maximum amount of funds an individual or entity can obtain as a loan. In digital asset markets, this is typically determined by the value and type of collateral provided, along with the lending protocol’s risk parameters. Decentralized finance platforms calculate borrowing limits algorithmically, often based on loan-to-value ratios of deposited assets. The stability and liquidity of the collateral directly influence the available borrowing capacity.
Context ∞ News reports on borrowing power often relate to market volatility and its impact on collateralized loans in DeFi. Significant price movements in digital assets can rapidly alter a borrower’s capacity, leading to liquidation risks. Regulatory scrutiny on lending protocols may also affect the calculation and availability of borrowing power. Monitoring these factors is essential for comprehending market stability and investor risk.