DeFi lending

In an overcollateralized lending market, a user deposits collateral and borrows within configured limits. An oracle may value assets and an algorithmic model determine interest.

A position breaching collateral thresholds can be partially or fully liquidated. Flash loans instead require repayment within the same transaction. Other credit models assess identity and counterparty risk.

Risks include code failures, incorrect prices, insufficient liquidity and bad debt. Regulatory treatment depends on activity and participants; the DeFi label does not establish a universal exemption.