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What Is the Concept of a Collateralized Debt Position (CDP) in DeFi?

A CDP is a smart contract that locks overcollateralized crypto to mint a stablecoin or derivative, with automatic liquidation if collateral value drops.
Greeks.Live09.11.25

What Is the Concept of a Collateralized Debt Position (CDP) in DeFi?

A Collateralized Debt Position (CDP) is a smart contract mechanism that allows a user to lock up cryptocurrency collateral to generate or mint a stablecoin or other derivative asset. The debt created is overcollateralized, meaning the value of the collateral is greater than the debt issued, to absorb price volatility.

If the collateral value drops too low, the CDP is automatically liquidated to repay the debt.

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