A credit framework establishes the rules, procedures, and systems governing the extension, management, and repayment of credit. This structure defines eligibility criteria, collateral requirements, interest rates, and dispute resolution mechanisms. It aims to standardize lending practices and mitigate financial risk within a given economic system. Such frameworks are essential for stable financial operations.
Context
Within decentralized finance (DeFi), the establishment of robust credit frameworks is critical for the development of lending protocols and stablecoin systems. News often covers new DeFi credit models, discussions on collateralization ratios, and the challenges of managing credit risk in permissionless environments. The evolution of these frameworks directly influences the stability and scalability of decentralized financial services.
This move embeds digital assets into traditional credit infrastructure, optimizing capital efficiency and mitigating counterparty risk for institutional lending.
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