Collateralized vs. Overcollateralized vs. Undercollateralized DeFi Loans

In decentralized finance (DeFi), collateralized loans are loans secured by collateral, which the borrower must deposit to the lender as a guarantee for the loan. The collateral is typically cryptocurrency and held in a blockchain smart contract. Overcollateralized loans are loans where the value of the collateral is greater than the loan's value. This means that the lender has a cushion of additional collateral to protect against potential losses in case the value of the collateral drops. On the other…

What Are Overcollateralized DeFi Loans

Overcollateralized loans in the context of DeFi are loans where the borrower must provide collateral in an amount greater than the value of the loan itself. This collateral can be in the form of cryptocurrency assets such as Ethereum, Binance Coin, or other ERC-20 tokens or BNB BEP20 Tokens. For example, Alice wants to borrow $10,000 worth of Ethereum (ETH). However, she has $15,000 worth of ETH that she will put up as collateral. Alice can then use a DeFi platform…