DeFi Lending Solvency

DeFi Lending Solvency refers to the ability of a decentralized lending protocol to meet its obligations to depositors and lenders. This is maintained through over-collateralization, where borrowers must provide more value in assets than they borrow.

If the value of the collateral falls below a certain threshold, the protocol triggers an automatic liquidation process to protect the lender. Solvency depends on the accuracy of price oracles, the liquidity of the collateral assets, and the effectiveness of the liquidation engine.

If a protocol becomes insolvent, it can lead to a loss of funds for users and damage the reputation of the entire DeFi sector. Monitoring solvency is a key part of assessing the stability and safety of decentralized financial infrastructure.