Permissionless Borrowing

Definition ∞ Permissionless borrowing allows individuals to take out loans using digital assets without needing approval from a traditional lender. This financial activity, primarily found in decentralized finance (DeFi), enables users to obtain loans by supplying collateral to a smart contract, without requiring identity verification, credit checks, or approval from an intermediary. The terms of the loan, including interest rates and collateral requirements, are typically determined algorithmically. This system promotes financial accessibility and censorship resistance.
Context ∞ Permissionless borrowing is a key feature of the crypto credit market, facilitating rapid access to liquidity for digital asset holders. News often covers the growth of decentralized lending platforms and the risks associated with highly volatile collateral, such as potential liquidations during market downturns. Regulators are examining the implications of these systems for financial stability and consumer protection due to their pseudonymous nature and lack of traditional oversight.