Collateralized Loan Risk refers to the potential for financial loss associated with loans secured by digital assets, especially if the value of the underlying collateral decreases substantially. This risk is a central consideration within decentralized finance lending protocols. It quantifies the exposure of lenders and borrowers.
Context
In decentralized finance, collateralized loans are a common financial instrument, yet their inherent risk becomes particularly pronounced during periods of elevated market volatility. News frequently covers liquidation events and protocol stability during rapid asset price declines. This underscores the importance of sound risk management structures within these digital lending systems.
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