Definition ∞ Collateralized Loan Obligations or CLOs are financial instruments backed by a pool of corporate loans, typically those issued to highly leveraged companies. These loans are grouped and then divided into tranches, each with varying levels of risk and return. Investors receive payments from the interest and principal of the underlying loan pool.
Context ∞ While traditionally a part of conventional finance, Collateralized Loan Obligations are becoming relevant in discussions about tokenization and the securitization of digital asset-backed loans. The critical future development involves the potential for CLOs to be represented as digital tokens on a blockchain, offering increased transparency and fractional ownership. This integration could revolutionize debt markets by improving accessibility and efficiency.
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