Debt-for-Equity Swap

A debt-for-equity swap is a restructuring process where creditors agree to cancel some or all of the debt owed to them in exchange for equity or governance tokens in the entity. This reduces the debt burden on the protocol, allowing it to continue operations without the pressure of immediate repayment.

In a crypto context, this might involve holders of a debt instrument receiving voting tokens that represent ownership or influence over the protocol's future. This approach aligns the interests of former creditors with the long-term success of the project.

It is a common strategy used to avoid bankruptcy and restore the balance sheet of a struggling organization. By converting debt to equity, the protocol gains the breathing room needed to implement structural changes.