Overcollateralization is the practice of requiring collateral with a value exceeding the amount of the loan or debt secured. This additional collateral serves as an extra layer of protection for the lender against potential default or asset price depreciation. It reduces the lender’s risk exposure, particularly in volatile markets, by providing a buffer against adverse market movements.
Context
Overcollateralization is a fundamental security mechanism in decentralized finance (DeFi) lending protocols. Given the pseudonymous nature of borrowers and the volatility of many crypto assets, protocols often demand collateral significantly greater than the loan amount to ensure repayment. This mechanism helps maintain the solvency of lending pools and protects lenders, although it also means borrowers must lock up more capital than they receive, affecting capital efficiency.
Tokenizing the state treasury enables instant, auditable contractor payments, fundamentally de-risking public sector working capital flows and setting a new efficiency benchmark.
We use cookies to personalize content and marketing, and to analyze our traffic. This helps us maintain the quality of our free resources. manage your preferences below.
Detailed Cookie Preferences
This helps support our free resources through personalized marketing efforts and promotions.
Analytics cookies help us understand how visitors interact with our website, improving user experience and website performance.
Personalization cookies enable us to customize the content and features of our site based on your interactions, offering a more tailored experience.
