How Do Lending Protocols Utilize ERC-20 Standards for Collateral?
Lending protocols rely on the standardized transferFrom and approve functions of ERC-20. Users approve the lending contract to access their collateral tokens.
When a loan is issued, the contract locks the collateral. If the loan is liquidated, the contract uses transferFrom to seize and sell the collateral.
The standard ensures the protocol can interact reliably with any approved ERC-20 token.
Glossar
ERC-20 Standards
Architecture ⎊ ERC-20 standards define a uniform Application Programming Interface (API) for token creation and management on the Ethereum blockchain, fundamentally altering the landscape of digital asset representation.
Lending Protocols
Protocol ⎊ Lending protocols, within the convergence of cryptocurrency, options trading, and financial derivatives, represent a structured framework enabling the decentralized lending and borrowing of digital assets.
Erc-20
Fungibility ⎊ ERC-20 defines a common set of rules for tokens on the Ethereum blockchain, ensuring perfect fungibility, meaning each token is interchangeable with another of the same type.