Yield-Bearing Collateral

Definition ∞ Yield-bearing collateral is an asset used as security for a loan that also generates returns for its holder. In decentralized finance, this often involves using tokens that accrue interest, staking rewards, or other forms of yield as collateral for borrowing additional assets. This allows borrowers to maintain their yield generation while simultaneously accessing liquidity. The underlying asset continues to generate passive income, making the collateral more capital-efficient compared to non-yield-bearing assets.
Context ∞ The discussion around yield-bearing collateral centers on its potential to optimize capital efficiency in decentralized lending and borrowing protocols. A key debate involves the inherent risks associated with such collateral, including the volatility of the underlying asset and the potential for liquidation if its value drops. Future developments will likely include more sophisticated risk management models for assessing yield-bearing collateral and the integration of diverse types of interest-generating assets.