What Is a ‘Yield-Bearing’ Collateral and How Does It Affect Efficiency?
Yield-bearing collateral is a tokenized asset that generates a return for the holder, such as a staked cryptocurrency or a token representing interest-earning government bonds. Using this as collateral in a stablecoin protocol improves capital efficiency because the locked collateral continues to generate yield for the borrower or the protocol.
This return effectively lowers the net cost of borrowing the stablecoin, making the over-collateralized system more attractive and productive for the user.
Glossar
Capital Efficiency
Leverage ⎊ Capital efficiency, within cryptocurrency and derivatives, fundamentally represents the maximization of risk-adjusted returns relative to capital at risk, a metric increasingly vital given regulatory constraints and market volatility.
Net Cost of Borrowing
Borrowing Rate ⎊ The net cost of borrowing within cryptocurrency, options trading, and financial derivatives represents the true expense incurred to finance a position, factoring in explicit fees alongside implicit costs stemming from market dynamics.
Staked Cryptocurrency
Yield ⎊ Staked cryptocurrency represents a capital deployment strategy wherein cryptocurrency assets are actively participated in network consensus mechanisms, typically Proof-of-Stake, to generate rewards; this process effectively transforms a static asset holding into an income-producing position, analogous to bond yields or dividend-paying equities.
Collateralized Debt Position
Mechanism ⎊ Collateralized Debt Positions represent a core component within decentralized finance, functioning as loans secured by cryptocurrency assets; these positions enable users to borrow assets against their crypto holdings, creating a dynamic interplay between lending and borrowing protocols.