Definition ∞ Money Market Tokens are digital assets that represent a claim on underlying assets held within a decentralized money market protocol. These tokens typically accrue interest or yield from lending activities within the protocol. They provide users with a tokenized representation of their deposits, which can then be used in other decentralized finance applications. This innovation offers new avenues for earning returns on digital capital.
Context ∞ The rise of money market tokens is a significant development in decentralized finance, enabling users to earn passive income on their digital assets. The current discussion involves the risks associated with these protocols, such as smart contract vulnerabilities and fluctuating interest rates. Future advancements will focus on improving the stability and capital efficiency of these tokens, alongside enhanced risk management frameworks. This evolution is key to the maturity of DeFi lending.
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