Capital Efficiency Model

Definition ∞ A Capital Efficiency Model describes a framework designed to maximize the productive use of financial resources within a system. In decentralized finance, this refers to protocols structured to achieve higher returns or greater utility from locked capital. Such models aim to minimize idle assets and optimize liquidity provision, often through innovative lending, borrowing, or trading mechanisms. The goal is to improve the overall economic output relative to the capital deployed.
Context ∞ The discussion around capital efficiency models in DeFi focuses on improving the utilization of collateral and liquidity to enhance yields and reduce costs. A key debate involves balancing capital efficiency with security and risk management, as highly leveraged or complex models can introduce new vulnerabilities. Critical future developments will likely involve advanced algorithmic strategies and cross-chain solutions to further optimize capital deployment across various decentralized applications.