Definition ∞ Loan capacity, in the context of decentralized finance lending protocols, represents the maximum amount of a specific asset that can be borrowed from a liquidity pool. This limit is determined by factors such as the total amount of collateral deposited, the protocol’s risk parameters, and the availability of funds within the lending pool. It helps manage the protocol’s overall exposure and maintain stability by preventing excessive borrowing against limited reserves. This metric is dynamic and adjusts with market conditions.
Context ∞ News concerning DeFi lending often reports on changes in loan capacities for various assets, which can signal shifts in market liquidity, protocol risk adjustments, or increased demand. A reduction in loan capacity might indicate concerns about asset volatility or liquidity, while an increase suggests confidence. This metric is a key indicator for both borrowers seeking funds and liquidity providers assessing the utilization and risk of their deposited assets. It influences the overall health and functionality of lending platforms.
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