What Is the Term for a Margin Call in a DeFi Lending Protocol?
The term for a margin call in a Decentralized Finance (DeFi) lending protocol is typically "liquidation." Since DeFi protocols are automated by smart contracts, there is no centralized entity to issue a "call." Instead, when a borrower's collateralization ratio falls below a pre-defined threshold, the smart contract automatically allows an incentivized "liquidator" to repay the loan and seize the collateral, often at a discount.
Glossar
Lending Protocol
Collateral ⎊ Lending protocols within cryptocurrency represent a paradigm shift in capital allocation, functioning as decentralized marketplaces facilitating loan issuance and acceptance against deposited digital assets as security.
DeFi Lending
Mechanism ⎊ DeFi lending operates through smart contracts that facilitate peer-to-peer or pooled borrowing and lending without traditional financial intermediaries.
Decentralized Finance
Architecture ⎊ Decentralized Finance, within the cryptocurrency ecosystem, represents a paradigm shift in financial infrastructure, moving away from centralized intermediaries towards peer-to-peer systems leveraging blockchain technology.
Collateralization Ratio
Margin ⎊ The collateralization ratio, within cryptocurrency and derivatives, represents the proportion of collateral deposited relative to the value of the underlying asset or open position; it functions as a critical risk management parameter, directly influencing systemic stability and counterparty exposure.