Definition ∞ Non-custodial lending describes a decentralized finance (DeFi) model where users retain direct control over their digital assets throughout the lending process. Unlike traditional lending, no third party holds the funds; instead, smart contracts autonomously manage collateral and loan terms. This system reduces counterparty risk and enhances transparency for participants. It empowers users with greater sovereignty over their financial holdings.
Context ∞ The discourse surrounding non-custodial lending often highlights its advantages in reducing reliance on centralized intermediaries and mitigating censorship risks. A key debate involves the security of smart contracts and the potential for liquidation events under volatile market conditions. Future developments will focus on improving user interfaces, enhancing smart contract audit standards, and developing more robust risk management frameworks for these platforms.
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