Collateralized Borrowing

Definition ∞ Collateralized borrowing involves obtaining a loan by pledging an asset as security against potential default. Should the borrower fail to repay, the lender can claim the pledged asset. In decentralized finance, this often means locking digital assets in a smart contract to borrow other cryptocurrencies or stablecoins. This mechanism reduces lender risk and enables liquidity for borrowers without traditional credit checks.
Context ∞ Collateralized borrowing is a central activity within decentralized finance protocols, consistently reported in crypto news concerning lending platforms. Key discussions revolve around liquidation thresholds, the volatility of collateral assets, and the efficiency of oracle services for price feeds. Future developments may include more sophisticated collateral types, cross-chain collateral arrangements, and enhanced risk management models for decentralized lending markets.