Ammalgam

Borrowing in DeFi: Why You Need to Put Up Collateral First

Borrowing in decentralized finance looks simple on the surface: you deposit one asset and borrow another. But the mechanics behind it are fundamentally different from the systems people are used to in traditional finance. DeFi cannot rely on identity, credit scores, employment verification, or legal enforcement. Smart contracts only see balances, collateral ratios, and predefined rules. Because of that limitation, DeFi had to adopt a model where loans are fully collateralized, and liquidation...