Smart Contract Solvency refers to the ability of a smart contract to meet its financial obligations and maintain the value of its underlying assets as intended. This implies that the contract holds sufficient collateral or has access to the necessary funds to execute its programmed functions. It is a critical measure of a decentralized application’s financial health.
Context
Smart contract solvency is a vital concern in decentralized finance (DeFi), frequently discussed in crypto news related to lending protocols, stablecoins, and yield farming. Insolvent smart contracts can lead to significant user losses and systemic risk within the DeFi ecosystem. Continuous monitoring and robust collateralization ratios are essential for maintaining confidence in these autonomous financial agreements.
A critical misvaluation of wrapped staked Ether collateral allowed a rapid, multi-transaction liquidation and asset drain, exposing the systemic risk of external data dependency.
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