Collateralized Debt Positions

Definition ∞ Collateralized Debt Positions are debt instruments in decentralized finance where users deposit cryptocurrency as security to borrow another digital asset. These positions maintain a collateralization ratio, ensuring the borrowed amount is over-secured by the deposited assets. If the collateral’s value drops below a set threshold, the position may face liquidation to repay the debt. This mechanism underpins many stablecoin systems and lending protocols.
Context ∞ The stability and risk management of Collateralized Debt Positions are central to discussions within decentralized finance, particularly concerning market volatility and liquidation mechanisms. Recent market events have highlighted the importance of robust oracle systems and dynamic liquidation parameters for these positions. Regulators are increasingly examining the systemic risks associated with highly leveraged CDP systems.