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  1. Home
  2. /Glossary
  3. /Overcollateralization
Back to Glossary
defi

Overcollateralization

Requiring borrowers to deposit more collateral than the amount they're borrowing.

Definition

Requiring borrowers to deposit more collateral than the amount they're borrowing. In DeFi, you typically need 150% or more collateral, meaning you deposit $150 worth of ETH to borrow $100 in stablecoins. This buffer protects lenders if the collateral's value drops, but it's capital inefficient.

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Related Terms

Collateral

Assets you put up as security when borrowing.

Lending Protocol

A DeFi application that lets you lend your crypto to earn interest or borrow against your holdings.

Liquidation

When a borrower's collateral is forcibly sold because their position became too risky.

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A DEX aggregator that splits trades across multiple decentralized exchanges to find the best overall price.

Aave

One of the biggest lending and borrowing protocols in DeFi.

Across Protocol

A cross-chain bridge that uses an optimistic verification system and a network of relayers to move tokens between chains quickly.

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