A collateral framework establishes the rules and procedures for assets pledged as security against a financial obligation. This structured system defines acceptable collateral types, valuation methodologies, and liquidation processes. It is designed to mitigate credit risk for lenders by providing recourse in the event of borrower default. The framework ensures transparent and predictable management of secured transactions.
Context
In decentralized finance (DeFi), collateral frameworks are foundational to lending protocols and the issuance of collateralized stablecoins. News often highlights updates or adjustments to these frameworks, such as changes in supported digital assets or oracle-based valuation methods, which directly influence protocol security and user risk exposure. Regulatory scrutiny of these frameworks is also increasing, focusing on their robustness and potential systemic implications.
Integrating major digital assets as collateral expands institutional credit capacity, reducing counterparty risk and optimizing capital efficiency for global lending operations.
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