No credit checks or approval needed—how do you borrow money in DeFi?
First, how it works: Most decentralized lending uses overcollateralization, meaning the value you can borrow is less than the value of your collateral.
Why? On-chain lending doesn’t involve credit checks. Borrowers are just anonymous addresses, so protocols rely on collateral worth more than the loan to limit the risk of bad debt.
$AAVE is the governance token of the on-chain lending protocol Aave. Current price: 151.86.
Understanding how it works can help you avoid some pitfalls, but it can’t replace risk management.
First, how it works: Most decentralized lending uses overcollateralization, meaning the value you can borrow is less than the value of your collateral.
Why? On-chain lending doesn’t involve credit checks. Borrowers are just anonymous addresses, so protocols rely on collateral worth more than the loan to limit the risk of bad debt.
$AAVE is the governance token of the on-chain lending protocol Aave. Current price: 151.86.
Understanding how it works can help you avoid some pitfalls, but it can’t replace risk management.