On-Chain Collateral refers to digital assets that are locked within a smart contract on a blockchain to secure a loan or other financial obligation. This collateral is transparently recorded and verifiable on the ledger, providing a high degree of certainty for lenders. Its use is central to the functioning of decentralized lending protocols.
Context
The utilization of On-Chain Collateral is a defining characteristic of decentralized finance (DeFi), enabling peer-to-peer lending and borrowing without traditional financial intermediaries. Current discourse often centers on the types of assets accepted as collateral, risk management strategies for collateralized positions, and the potential for cascading liquidations during periods of high volatility. Future advancements are expected to broaden the range of accepted collateral and refine risk assessment models.
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