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Definition CDPcollateral vaultminting position

Collateralized Debt Position

A position created by locking collateral in a contract and minting new tokens against it, which are repaid to unlock the collateral.

The borrowed tokens are created at the moment of borrowing rather than drawn from another user's deposit, so there is no lender on the other side, only a system-wide debt recorded against the collateral. The user pays a stability fee that accrues on the debt, and must maintain a minimum ratio of collateral value to debt or face automatic liquidation, usually through an auction that sells the collateral to repay what is owed. This structure is how most crypto-collateralized stablecoins are issued, and it means the token's supply grows and shrinks with borrowing demand rather than with deposits. It differs from pooled lending in a way that matters for understanding risk: the counterparty is the protocol's own accounting, not another user waiting to be repaid.

In practice

Locking collateral to mint a stablecoin, then repaying that stablecoin plus the accrued fee to release the collateral, is the full lifecycle of a collateralized debt position.

The common misunderstanding

In a CDP the borrowed stablecoin is newly minted against collateral, not borrowed from a depositor's funds, so no user is waiting to be repaid.

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Related terms

Crypto-Collateralized Stablecoin A stablecoin created by locking volatile digital assets in a contract at a value greater than the…
Lending Protocol A smart contract system where users deposit assets that others can borrow, with interest rates set…
Liquidation The forced closing of a leveraged position by an exchange or protocol when the collateral behind it…
Liquidation Threshold The collateral-to-debt level at which a protocol allows a borrower's collateral to be sold to repay…
Over-Collateralization Requiring a borrower to lock collateral worth more than the amount borrowed, so the loan stays…
Vault A smart contract that accepts deposits and runs a defined strategy with them automatically, issuing…
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