Under-Collateralized
DeFi
Loan backed by collateral worth less than liability.
Under‑collateralized loans require less collateral than the borrowed amount, relying on credit underwriting or off‑chain guarantees. They trade speed and capital efficiency for increased credit risk.
Frequently asked questions
Who gets under collateralized loans?
Borrowers with credit checks, business history, or off chain guarantees.What risks do lenders take?
Higher default risk. Protections include risk tranching, insurance, and legal agreements.How do protocols manage this?
With whitelists, risk frameworks, and monitoring. Read terms before participating.