A lending arrangement where a borrower pledges assets as security for a loan. In decentralized finance, this often involves locking digital assets into smart contracts to secure a loan of other cryptocurrencies or stablecoins. Should the borrower fail to repay, the collateral may be seized.
Context
The efficiency and security of collateralized financing mechanisms are continuously evaluated in decentralized lending protocols. Market volatility presents a constant challenge, necessitating robust liquidation processes and dynamic collateral requirements to mitigate default risks.
This innovation tokenizes a debt instrument with a digital asset collateral pool, providing a scalable, compliant bridge between traditional public finance and the crypto capital ecosystem.
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