DeFi collateral refers to digital assets locked within decentralized finance protocols as security for loans or other financial services. These assets act as a guarantee, ensuring that borrowers meet their obligations within the protocol. If a borrower fails to repay a loan, the collateral can be liquidated to cover the outstanding debt. The value and type of accepted collateral are determined by the specific rules of each DeFi application.
Context
The discussion surrounding DeFi collateral frequently addresses volatility risks and the need for robust liquidation mechanisms to maintain protocol solvency. A key consideration involves the diversity and quality of assets accepted as collateral, alongside the implementation of dynamic risk parameters. Future developments will likely include the acceptance of a wider array of real-world assets as collateral and the development of more capital-efficient collateral models.
The FAssets primitive transforms static, high-value crypto assets into composable DeFi collateral, creating a powerful new cross-chain liquidity flywheel.
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