$TROLL
Heating UpSnapshot Window: 2026-09-05 20:40 UTC · ← Back to Crypto Overview
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Overcollateralized lending in DeFi: mechanics and risks Overcollateralized lending lets a borrower lock more value in collateral than the amount borrowed. A protocol typically tracks collateral value with price oracles, sets a loan-to-value threshold, and liquidates positions that fall below the required health factor. This design reduces some default risk but does not remove it. Key risks include smart-contract bugs, oracle failures or manipulation, rapid market gaps, liquidation slippage, volatile collateral, liquidity shortages, and governance changes. Stablecoins can also lose their intended peg, increasing the chance of forced liquidation. Interest rates may change as utilization changes, so a position that looks safe initially can become riskier over time.