Protocol Solvency Check

Definition ∞ A Protocol Solvency Check is an automated or manual assessment to verify that a decentralized finance protocol possesses sufficient assets to cover all its outstanding liabilities. This verification is critical for ensuring the financial health and stability of lending platforms or stablecoin systems. It provides transparency regarding the protocol’s ability to meet its obligations.
Context ∞ The importance of protocol solvency checks has been amplified by recent events involving centralized crypto entities, leading to increased demand for transparency in decentralized finance. News often discusses new tools and methodologies for real-time on-chain solvency monitoring. These checks are becoming a standard expectation for users and a key factor in assessing the trustworthiness of DeFi protocols.