Collateralization Primitive

Definition ∞ A Collateralization Primitive is a foundational component within a decentralized finance protocol that enables the securing of a loan or other financial position with digital assets. These primitives define the rules for asset deposits, valuation, and liquidation, forming the basic building blocks of collateralized debt positions. They are essential for managing risk in non-custodial lending systems.
Context ∞ The evolution of collateralization primitives is a key area of innovation in DeFi, with protocols continuously introducing new asset types and more efficient risk parameters. Discussions often revolve around supporting a wider array of digital assets as collateral, including non-fungible tokens, and developing dynamic collateral ratios. Regulatory bodies are also examining these primitives to assess systemic risk within the decentralized financial landscape.