What it means
A loan or stablecoin backed by more value than it's worth, to leave room for price swings.
DeFi loans have to be overcollateralised because there's no credit check and no one to chase repayment.
How it works
Some stablecoins, such as DAI, are also overcollateralised with crypto instead of backed by cash.
Related terms
| Term | What it means |
|---|---|
| Collateral | What a borrower deposits to secure a loan, which the protocol can sell if the loan isn't safe any more. |
| Loan-to-value (LTV) | How much you can borrow against your collateral, as a share of its value. |
| Stablecoin | A token on a blockchain designed to keep a steady value, usually one dollar or one euro, backed by reserves. |
This glossary explains terms in general. It isn't investment, tax or legal advice.