Low Collateral Loans

Definition ∞ Low collateral loans are a type of lending where the borrower provides significantly less collateral than the value of the loan received, or sometimes no collateral at all. In decentralized finance, these loans represent a departure from typical overcollateralized crypto lending models, relying instead on alternative credit assessment methods or reputation systems. They aim to make borrowing more accessible by reducing the upfront capital requirement.
Context ∞ The pursuit of low collateral loans is a significant development in decentralized finance, seeking to broaden the utility and reach of crypto lending beyond well-capitalized users. News often discusses the innovative mechanisms, such as on-chain credit scores or social lending models, being developed to mitigate the inherent risks. Success in this area could significantly alter the landscape of digital asset borrowing and expand financial inclusion.