DeFi Credit Risk

These terms explain how on-chain borrowing is secured and when loans become risky.

Borrow APY

Borrow APY is the estimated yearly cost paid by a borrower in a lending market.

Collateral ratio compares the value of pledged assets with the value of the debt they secure.

Health factor estimates how close a lending position is to liquidation.

A liquidation penalty is an extra cost charged when collateral is sold to repay an unsafe loan.