Native token collateral refers to using a blockchain’s foundational cryptocurrency as security for a loan or other financial instrument within decentralized finance protocols. Participants lock up these network-specific tokens to back debt positions, enabling borrowing or other leveraged activities. The value of the collateral is typically monitored against the borrowed asset to ensure solvency. This mechanism is central to the operation of many DeFi lending platforms.
Context
The volatility of native token collateral is a primary risk factor in DeFi, frequently leading to liquidations during market downturns. Discussions often center on optimal collateralization ratios, oracle reliability for price feeds, and strategies for mitigating impermanent loss. Future protocol designs aim to introduce more stable collateral options and dynamic risk parameters to enhance the resilience and predictability of decentralized lending markets.
The protocol's integration of its native token as a primary collateral asset fundamentally re-architects liquidity incentives, driving a new flywheel for derivatives capital efficiency.
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