How Does Over-Collateralization Protect a DeFi Lending Protocol? ⎊ Path

How Does Over-Collateralization Protect a DeFi Lending Protocol?

Over-collateralization requires the value of the deposited collateral to be significantly higher than the borrowed amount. This buffer provides a margin of safety against rapid price drops of the collateral asset.

It ensures that even a sharp market decline gives the protocol enough time to liquidate the collateral and fully repay the loan.

What Is a ‘Haircut’ in the Context of Collateral Valuation?

How Does Over-Collateralization Differ from Under-Collateralization in DeFi Derivatives?

What Is the Flash Loan Attack Vector in Liquidation?

How Does Uncertain NFT Valuation Impact the Required Collateral for a Tokenized Loan?

What Is “Over-Collateralization” in Terms of the Ratio?

How Does Over-Collateralization Protect a DeFi Lending Platform from Price Oracle Manipulation?

How Does the Exchange Calculate the Amount of Margin Required to Meet the Call?

How Does an NFT Lending Protocol Handle Partial Loan Repayment?

Glossar

DeFi Lending

Mechanism ⎊ DeFi lending operates through smart contracts that facilitate peer-to-peer or pooled borrowing and lending without traditional financial intermediaries.

Margin of Safety

Calibration ⎊ Margin of Safety, within cryptocurrency derivatives, represents a quantitative assessment of potential downside risk relative to anticipated return, functioning as a buffer against model inaccuracies and unforeseen market events.