Collateral loss refers to the forfeiture of assets pledged to secure a loan or financial position, typically due to a failure to meet predefined conditions. This occurs when the value of the collateral falls below a certain threshold or loan obligations are not satisfied. In decentralized finance, collateral loss often results from liquidation events triggered by adverse market movements. It represents a direct financial detriment to the borrower.
Context
News regarding collateral loss frequently surrounds liquidation protocols in lending platforms and margin trading on decentralized exchanges. The mechanisms designed to prevent or manage such losses, like dynamic collateral requirements, are subjects of ongoing protocol development. Understanding the conditions leading to collateral loss is essential for participants in overcollateralized digital asset systems.
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