Uncollateralized borrowing involves obtaining a loan without pledging any assets as security against potential default. The lender extends credit based solely on the borrower’s creditworthiness, reputation, or a predefined trust mechanism. This form of lending carries higher risk for the creditor.
Context
In decentralized finance, uncollateralized borrowing is generally more complex than traditional lending due to the pseudonymous nature of blockchain transactions. News reports often discuss innovative approaches, such as reputation-based lending or flash loans, that seek to address this challenge. The development of robust credit scoring in DeFi is crucial for expanding this lending model.
A temporary oracle malfunction on the Base network mispriced a collateral token, enabling a $1 million uncollateralized asset drain via systemic lending protocol logic.
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