Common Terminology

Financial terms to know when using lending and borrowing protocols

Common Terms

Collateral - An asset pledged as security for repayment of a loan which will be forfeited in the event of a default.

Collateral Ratio - The ratio between the dollar value of your collateral and current debt accrued.

Liquidation - Selling assets for cash when certain conditions are met.

Liquidation Price - The price point at which your leveraged positions are automatically closed out.

Liquidation threshold - The percentage at which a loan is defined as undercollateralized. For example, a liquidation threshold of 80% means that if the value of debt accrued rises above 80% of the collateral, the loan is undercollateralized and could be liquidated.

Loan to Value (LTV) - Measures the relationship between the loan amount and the market value of the asset securing the loan

Total Value Locked (TVL) - The sum of all staked crypto assets that are generating yield.

Health Score - A scoring system that represents the riskiness of a loan. The higher the score the less riskier the position. A health score of 1 or lower is at risk of liquidation.

Borrowing Power - The amount of capital you're able to borrow in the current moment.

Peer-to-Peer vs. Peer-to-Pool

In Peer-to-Pool lending, lenders supply tokens (provide liquidity) to a pool of assets, and borrowers take these tokens (borrow liquidity) from that same pool. Instead of each party interacting directly with the other, they interact with the communal pool.