Definition ∞ A Collateral Drain refers to an event where a significant portion, or all, of the assets held as collateral within a decentralized finance protocol are illicitly removed. This typically results from a successful exploit of a smart contract vulnerability, leading to the unauthorized transfer of secured funds. Such an incident severely compromises the solvency and operational integrity of the affected lending or borrowing platform. It represents a catastrophic loss for both the protocol and its users.
Context ∞ Collateral drains are among the most damaging security incidents in decentralized finance, often leading to substantial financial losses reported in crypto news. The industry prioritizes rigorous security audits and bug bounties to prevent these events. Ongoing efforts concentrate on developing more robust smart contract designs and decentralized risk management systems to counter such threats.
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