Definition ∞ Crypto loans are financial arrangements where digital assets are either borrowed, lent, or used as collateral. These loans permit individuals to obtain liquidity by pledging cryptocurrency as security, often without the need for traditional credit checks. They can be facilitated through centralized platforms or decentralized finance protocols, offering immediate access to funds. A common characteristic involves overcollateralization, where the value of the collateralized digital assets surpasses the loan amount to mitigate market volatility.
Context ∞ The crypto loans sector experienced significant growth but also considerable volatility during recent market downturns, highlighting inherent risks associated with asset price fluctuations. Regulatory bodies are increasingly examining these lending products, considering their classification and appropriate consumer protection measures. Discussions often address the solvency of centralized lenders and the liquidation risks within decentralized protocols. The future evolution of crypto loans will likely involve enhanced risk management tools and clearer regulatory frameworks to foster greater stability and adoption.
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