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5:00DeFi Lending: Overcollateralization and Liquidation Bots
There is no credit check, no loan officer, and no recovery agent. To borrow on Aave you must already own more than you take, and the moment your buffer thins, a bot you will never meet repays your debt and walks off with a slice of your collateral.
On-chain lending markets like Aave and Compound have no way to chase a defaulter. A smart contract cannot garnish wages or sell a house, so it solves credit risk with a brutal substitute: you must post collateral worth more than you borrow, and the protocol stands ready to sell that collateral the instant your position weakens. Every borrower is effectively a margin account that never sleeps.
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