Definition ∞ 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.
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