Tokenized collateral refers to digital assets, represented as tokens on a blockchain, that are pledged as security for a loan or other financial obligation within decentralized finance (DeFi) applications. These tokens secure a debt, and their value typically exceeds the loan amount to account for market volatility. This mechanism enables trustless lending and borrowing.
Context
News concerning tokenized collateral frequently focuses on its role in underpinning the vast majority of lending and borrowing protocols in DeFi. Discussions often address issues such as liquidation thresholds, market volatility risks, and the overall stability these assets provide to decentralized financial systems. The effective management of tokenized collateral is essential for the health of the DeFi ecosystem.
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