Platform Solvency

Platform solvency refers to the ability of a financial protocol to meet all its financial obligations, including the repayment of user deposits and the covering of derivative positions. A solvent platform has enough assets to cover all its liabilities.

When a platform becomes insolvent, it means that the total value of its assets is less than the total value of its liabilities, often due to bad debt from liquidations or smart contract exploits. Maintaining solvency is the primary objective of any financial system, achieved through robust collateralization, insurance funds, and risk management protocols.

If a platform loses its solvency, it can lead to a total loss of funds for users. It is the fundamental measure of institutional and protocol-level health.