DeFi and Credit Risk

Credit risk is part of just about every financial asset in traditional markets, but not so in DeFi. Everything from mortgages to CME corn futures, German bunds and Amazon gift cards has an embedded credit component (and cost). In DeFi, however, your credit record is entirely irrelevant. Your borrowing power in AAVE, for example, is determined only by the value of the collateral you put in. If it falls beyond the threshold and the smart contract functions correctly, your position is liquidated. There is no recourse, no one to call, no place to explain your situation.

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