Definition ∞ A DeFi product loop describes a sequence of operations within decentralized finance where outputs from one protocol serve as inputs for another, creating a cyclical economic flow. This process often involves staking, lending, borrowing, and yield generation, where earned assets are subsequently redeployed. Such loops aim to maximize capital efficiency and returns for participants. These interconnected actions are fundamental to many advanced DeFi strategies.
Context ∞ The discussion around DeFi product loops frequently concerns their sustainability and the systemic risks they might introduce. A key debate involves assessing the true economic value generated versus the potential for speculative bubbles or cascading liquidations. Future developments will likely focus on improving the robustness and transparency of these loops, alongside efforts to mitigate associated risks through better risk management protocols and regulatory clarity.
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