How it works
Rates generally change with supply and demand, and borrowers often need to provide collateral worth more than the loan. Protocol rules determine when collateral can be liquidated.
What to check
Check collateral ratios, oracle design, interest-rate model and supported assets. Also identify governance and emergency controls.
- Check collateral requirements
- Understand rate model
- Identify oracle dependencies
Limits and risks
Smart-contract failure, oracle errors, depegging collateral and sudden rate changes can all produce losses even when a borrower remains solvent in ordinary market conditions.
Primary sources
Bitcoin Developer Reference↗Ethereum developer documentation↗FATF: Virtual Assets↗General information only. Investment products can lose value, and terms, fees and regulation can change.